SASB CONCEPTUAL

FRAMEWORK
SUSTAINABILITY ACCOUNTING STANDARDS BOARD
(SASB)

February 2017
 SASB CONCEPTUAL FRAMEWORK

Contents
Introduction ................................................................................................................................ 1
About SASB ............................................................................................................................. 1
1. Overview of Sustainability Accounting and Disclosure .............................................................. 2
Sustainability Accounting ......................................................................................................... 2
Purpose of Sustainability Accounting and Disclosure .................................................................. 4
Users of Sustainability Accounting Standards ............................................................................ 6
Beneficiaries of Sustainability Accounting Standards .................................................................. 6
Investors ............................................................................................................................... 6
Companies ........................................................................................................................... 7
Policymakers ......................................................................................................................... 8
2. Core Objectives of the SASB .................................................................................................... 9
SASB Standards Identify Information that Is Likely to Be Material ............................................... 9
SASB Standards Yield Decision-useful Information ....................................................................10
SASB Standards Are Cost-effective for Corporate Issuers ..........................................................11
3. Fundamental Tenets of the SASB Approach to Standards-Setting .............................................12
Evidence-Based .......................................................................................................................12
Evidence of Interest to a Reasonable Investor ........................................................................12
Evidence of Financial Impact .................................................................................................13
Market-Informed.....................................................................................................................15
Industry-Specific ......................................................................................................................16
Systemic Sustainability Issues ................................................................................................17
4. Guiding Principles and Criteria for Standards Development ......................................................18
Principles for Topic Selection....................................................................................................18
Criteria for Accounting Metrics ................................................................................................19
5. Elements of Standardized Presentation ....................................................................................20
General Disclosure Guidance ...................................................................................................20
Industry Description ................................................................................................................20
Topic and Topic Description .....................................................................................................20
Sustainability Accounting Metrics.............................................................................................20
Technical Protocols..................................................................................................................21
Activity Metrics .......................................................................................................................21
Appendix: SASB Sustainable Industry Classification System™ (SICS™) ..........................................22

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Introduction
This Conceptual Framework sets out the basic concepts, principles, definitions, and
objectives that guide the appointed technical Sustainability Accounting Standards Board
members (hereafter “the SASB”) in its approach to setting standards for sustainability
accounting. A companion document, the SASB Rules of Procedure, is focused on the
governance processes and practices for standards setting. Together, these documents
provide direction for the SASB and its work.
Section 1 of this document presents an overview of sustainability accounting, describing its
objectives and audience. The remainder of the document is organized around the
following framework, which illustrates how the various concepts contained herein relate to
and build upon one another in the course of the SASB’s standards-setting work.
Figure 1: The SASB Framework

ABOUT SASB
The Sustainability Accounting Standards Board (SASB) is an independent 501(c)(3)
nonprofit organization. SASB’s mission is to develop and disseminate sustainability
accounting standards that help public corporations disclose material, decision-useful
information to investors. That mission is accomplished through a rigorous process that
includes evidence-based research and balanced stakeholder participation. SASB standards
are designed for voluntary use in disclosures required by existing U.S. regulation in filings
with the Securities and Exchange Commission (SEC), such as Forms 10-K and 20-F.

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1. Overview of Sustainability Accounting

and Disclosure
In developing the first set of sustainability accounting standards for the U.S. capital
markets, SASB addresses a set of fundamental questions:
 What is sustainability accounting?
 What is the purpose of sustainability accounting?
 How does it differ from financial accounting?
 Who is its intended audience?
 How will it be used?

SUSTAINABILITY ACCOUNTING
The concept of sustainability or sustainable development is defined in the Brundtland
Report (Our Common Future) as “development that meets the needs of the present
without compromising the ability of future generations to meet their own needs.” 1
For the purposes of SASB standards, sustainability refers to corporate activities that
maintain or enhance the ability of the company to create value over the long term.
Sustainability accounting refers to the measurement, management, and reporting of such
corporate activities.
Sustainability accounting reflects the management of a corporation’s environmental and
social impacts arising from production of goods and services, as well as its management of
the environmental and social capitals necessary to create long-term value. It also includes
the impacts that sustainability challenges have on innovation, business models, and
corporate governance and vice versa.
Therefore, SASB’s sustainability topics are organized under five broad sustainability
dimensions:
1. Environment. This dimension includes corporate impacts on the environment,
either through the use of nonrenewable, natural resources as inputs to the factors
of production (e.g., water, minerals, ecosystems, and biodiversity) or through
harmful releases into the environment (such as air, land, and water) that may
negatively affect natural resources and result in impacts to the company’s financial
condition or operating performance.
2. Social Capital. This dimension relates to the perceived role of business in society, or
the expectation that a business will contribute to society in return for a social license

1
United Nations World Commission on Environment and Development, Our Common Future (Oxford: Oxford University Press, 1987), p.
43.

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to operate. It addresses the management of relationships with key outside parties,

such as customers, local communities, the public, and the government. It includes
issues related to human rights, protection of vulnerable groups, local economic
development, access to and quality of products and services, affordability,
responsible business practices in marketing, and customer privacy.
3. Human Capital. This dimension addresses the management of a company’s human
resources (employees and individual contractors) as key assets to delivering long-
term value. It includes issues that affect the productivity of employees, such as
employee engagement, diversity, and incentives and compensation, as well as the
attraction and retention of employees in highly competitive or constrained markets
for specific talent, skills, or education. It also addresses working conditions and the
management of labor relations in industries that rely on economies of scale and
compete on the price of products and services, and in industries with legacy pension
liabilities. Finally, it includes the management of the health and safety of employees
and the ability to create a safety culture for companies that operate in dangerous
working environments.
4. Business Model and Innovation. This dimension addresses the impact of
sustainability issues on innovation and business models. It addresses the integration
of environmental, human, and social issues in a company’s value-creation process,
including resource recovery and other innovations in the production process; as well
as in product innovation, including efficiency and responsibility in the design, use
phase, and disposal of products. It also includes management of environmental and
social impacts on tangible and financial assets—either a company’s own or those
that it manages as the fiduciary for others.
5. Leadership and Governance. This dimension involves the management of issues
that are inherent to the business model or common practice in the industry and that
are in potential conflict with the interest of broader stakeholder groups (e.g.,
government, community, customers, and employees), and therefore create a
potential liability or, worse, a limitation or removal of a license to operate. This
includes regulatory compliance, and regulatory and political influence. It also
includes risk management, safety management, supply-chain and materials
sourcing, conflicts of interest, anticompetitive behavior, and corruption and bribery.
In developing its provisional standards, the SASB identified sustainability topics from an
initial set of 30 broadly relevant sustainability issues (see Figure 2) organized under these
five sustainability dimensions.

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Figure 2: SASB Universe of Sustainability Issues

Environment Business model and

• GHG emissions innovation
• Air quality • Lifecycle impacts of products
and services
• Energy management Environment Social
• Environmental and social
• Fuel management capital
impacts on assets and
• Water and wastewater management operations
• Waste and hazardous materials • Product packaging
management
• Product quality and safety UNIVERSE OF
• Biodiversity impacts
SUSTAINABILITY
Leadership and governance Leadership
Social capital ISSUES
• Systemic risk management and
governance Human
• Human rights and community relations
• Accident and safety capital
• Access and affordability management
• Customer welfare • Business ethics and
• Data security and customer privacy transparency of payments
• Fair disclosure and labeling • Competitive behavior Business model
• Fair marketing and advertising and innovation
• Regulatory capture and political
influence
Human capital
• Materials sourcing
• Labor relations
• Supply chain management
• Fair labor practices
• Diversity and inclusion
• Employee health, safety, and
wellbeing
• Compensation and benefits
• Recruitment, development, and
retention

Although the “universe” of sustainability issues served as a starting point for the SASB’s
provisional standards setting, this extensive list was refined through a series of steps
designed to identify those issues reasonably likely to have material impacts on companies
in an industry. Because each of these issues tends to have a different impact or
consequence depending on the context in which it arises, sustainable corporate activities
will vary from one industry to another, meaning each industry has its own unique
sustainability profile. The disclosure topics included in SASB’s industry-specific provisional
standards are therefore a sub-set of this universe of sustainability issues, tailored to the
industry’s specific context.

PURPOSE OF SUSTAINABILITY ACCOUNTING AND DISCLOSURE

Market value typically differs from book value, in part, because traditional financial
statements do not necessarily capture all of the factors that contribute to a company’s
long-term ability to create value. Much of this “value gap” is attributable to, or can be
significantly impaired by the management or mismanagement of, environmental, social,
and human capitals as well as corporate governance. Therefore, corporate reporting must
extend beyond financial statements to facilitate the measurement and reporting of
sustainability information that will enhance a decision maker’s understanding of all
material risks and opportunities. Like financial accounting, sustainability accounting has
both confirmatory and predictive value, so it can be used to evaluate past performance and
be used for future planning and decision support. As a complement to financial

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accounting, it helps provide a more complete view of a corporation’s performance on

material factors likely to affect its ability to create long-term value.
Financial accounting addresses some elements of sustainability performance. However,
financial accounting is intended, for the most part, to reflect an entity’s current financial
condition and financial performance. Assessing the financial impact of sustainability issues
is inherently limited by the absence of proper valuation techniques and/or adequate market
pricing. While environmental, human, and social capitals can be understood conceptually
as economic assets and liabilities, the lack of comparable data makes accounting for these
sustainability factors challenging—a deficiency SASB standards are built to address.
Therefore, the SASB’s approach to sustainability accounting consists of defining
operational metrics on material, industry-specific sustainability topics likely to affect current
or future financial value. Like financial accounting information, sustainability accounting
information captures past and current performance, and can also be forward-looking to
the extent that it helps management describe known trends, events, and uncertainties 2
that may reveal an actual or potential impact on the financial condition or operating
performance of a reporting entity. SASB metrics—both qualitative and quantitative— will
thus be of interest to investors and creditors, thereby helping to communicate and to more
completely represent company performance.
Thus, sustainability accounting facilitates a more complete understanding of the
fundamentals of a reporting entity. For example, impacts associated with sustainability-
related “known trends” may result from:
 Management of critical capitals necessary for production of goods or services;
 Vulnerability to depletion or misuse of these capitals;
 Exposure to new or existing regulation or changing societal norms;
 Scenario-planning regarding alternative resources or business models;
 Risks associated with mismanagement of certain environmental, social, or
governance issues; and
 Opportunities associated with global or industry sustainability challenges.
SASB believes that, over time, accounting for sustainability performance will give investors
a more complete view of the outlook and ability of a corporation (and/or entire industry) to
manage risks and sustain value creation. Also, through sustainability accounting, investors
can better compare and distinguish companies based on their strategies and operations
with respect to these issues.

2
17 C.F.R. §229.303 – Item 303, Management’s discussion and analysis of financial condition and results of operations

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USERS OF SUSTAINABILITY ACCOUNTING STANDARDS

SASB standards are intended for voluntary use by public companies in making disclosures
on material sustainability factors in Forms 10-K, 20-F, and 40-F as required by existing U.S.
regulation. They are a market-driven response to the need for sustainability information
that is decision-useful for investors and cost-effective for issuers.
SASB standards may also be applicable to the disclosure of material sustainability
information by other types of organizations, including privately held corporations and
foreign corporations publicly listed in other jurisdictions.
As one of its core principles, the SASB seeks to align its standards and metrics with existing
frameworks and other reporting mechanisms and protocols, such as regulatory filings or
industry-developed best practices.
Corporations have many important stakeholders and a variety of channels through which
they may already be communicating some sustainability information, including websites,
sustainability reports, voluntary industry reporting, government agencies, and corporate
social responsibility reports. However, SASB standards are developed for use in statutory
financial filings for the benefit of investors and others who rely on such filings.

BENEFICIARIES OF SUSTAINABILITY ACCOUNTING STANDARDS

Investors
U.S. securities laws seek to protect investors by requiring companies whose securities are
registered with the SEC to provide annual and other periodic filings that are necessary for a
“reasonable investor” to make informed investment decisions. (See the definition of
“materiality” in Section 2). As changes occur in the broader economy, the information
markets need to efficiently allocate capital may also change in ways that may require public
companies to adjust their disclosures. 3 SASB standards are intended to help issuers identify
and more effectively disclose the information today’s investors need to make informed
decisions.
As of 2016, more than 1,600 organizations with $62 trillion in assets under management
were signatories to the Principles for Responsible Investment (PRI), indicating a
commitment to incorporate sustainability issues into investment analysis and decision-
making processes. 4 Meanwhile, the Forum for Sustainable and Responsible Investment’s
2016 report found that 20 percent of professionally managed assets in the U.S. include
sustainability considerations in their investment mandates. 5 However, achieving the
objectives of the PRI or other desired sustainable investment goals is hindered by a lack of
comparable, decision-useful data and information about these issues. Even when such

3
Business Roundtable, “The Materiality Standard for Public Company Disclosure: Maintain What Works” (October 2015)
4
Principles for Responsible Investment website, http://www.unpri.org, accessed Dec. 13, 2016
5
The Forum for Sustainable and Responsible Investment, 2016 Report on Sustainable and Responsible Investing Trends (November 14,
2016)

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information is available, culling it from current reports can require substantial time and
expense for investors.
SASB’s mission is to facilitate effective disclosure of material sustainability information in
SEC filings so that investors have access to the sustainability information that is necessary
to make informed investment decisions with reasonable effort and minimal expense.
SASB standards and other products are designed to support investors in their efforts to
integrate sustainability information into core activities, such as the following:
 Fundamental analysis: The availability of sustainability fundamentals alongside
financial fundamentals provides the data needed to adjust equity and debt valuation
models, as well as evaluate management quality for individual securities selection.
 Comparison and benchmarking: The data that results from thousands of publicly
traded companies disclosing standardized, industry-specific sustainability accounting
metrics will enable investors to perform peer-to-peer comparisons on critical
dimensions of sustainability performance and establish industry benchmarks against
which issuers can be compared.
 Portfolio management: SASB standards identify sustainability topics that are
reasonably likely to constitute material information for companies within a specific
industry. SASB’s Sustainable Industry Classification System™ (SICS™) groups
industries with similar business models and sustainability impacts. Together, SICS™
and the industry-specific disclosure topics will help investors identify and manage
under- or overexposure to certain types of sustainability risks and opportunities,
enabling alpha-seeking and risk-control on these sustainability dimensions to be
directly integrated into the portfolio construction and management processes.
 Active engagement: Investors and companies can use SASB standards—and the
information they yield—to guide conversations, resulting in more focused, more
productive engagements on material sustainability factors.

Companies
An increasing number of companies have begun reporting on sustainability issues in
voluntary, stand-alone reports on corporate social responsibility (CSR) or sustainability.
Indeed, 81 percent of the S&P 500 produced a sustainability report in 2015, up from less
than 20 percent in 2011, 6 and by 2016 more than 13,000 companies had produced more
than 80,000 reports globally. 7
However, these reports are costly to produce and lack focus on the sustainability issues
that are of most interest to investors, namely those most likely to have material impacts on
a company’s financial condition or operating performance. These CSR reports also
frequently have a reporting bias, as the information contained within them can be selected

6
Governance & Accountability Institute, “2016 Flash Report” (March 15, 2016)
7
Corporate Register website, http://www.corporateregister.com, accessed Dec. 13, 2016

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for perceptual reasons. As a result, companies also field requests for sustainability
information in the form of surveys and questionnaires from investors and ratings agencies,
creating an additional significant burden on the issuer with limited benefit to its
shareholders. 8
By focusing on the subset of sustainability factors that are material to investment decision
making, SASB standards yield information that may be useful to a company’s management
while also providing a cost-effective solution for disclosure to investors. Academic research
has shown that such a focus is correlated with outperformance in terms of sales, sales
growth, return on assets, and return on equity in addition to improved risk-adjusted
shareholder returns. 9 SASB metrics can enhance or be incorporated into companies’
performance evaluation systems to promote goal congruence and coordination,
communicate expectations, motivate business units, provide feedback to top-level decision-
makers, and inform benchmarking efforts. They can also help managers identify those
operations that are falling short of expectations, and to focus their attention on what
needs improvement.
Policymakers
Regulators, such as the SEC, have a mandate to promote and enforce the effective
disclosure of material topics. The results of the SASB’s industry-specific research provide
these and other policymakers with a better understanding of the sustainability factors that
are most likely to have material impacts on companies in each industry, as well as insights
into what useful disclosure on these topics looks like. Regulators can use the standards to
evaluate filings for both completeness and effectiveness.
In mid-2016, the SEC issued a Concept Release seeking public feedback on ways it could
modernize Regulation S-K disclosure requirements to make them more useful for today’s
investors. The subject of sustainability-related disclosure generated two-thirds of the non-
form comment letters submitted in response. Of those, 80 percent called for improved
disclosure of sustainability information in SEC filings, with more than two-thirds of those in
support of a market standard, such as SASB’s, to assist companies in meeting their filing
requirements.

8
Ann Klee, “Ratings Good for the Environment?” Environmental Forum (May/June 2015)
9
Mozaffar Khan, George Serafeim, and Aaron Yoon, “Corporate Sustainability: First Evidence on Materiality,” Harvard Business School
(March 2015)

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2. Core Objectives of the SASB

SASB is committed to facilitating more effective disclosure of material sustainability
information by issuers to investors. This section lays out the core objectives guiding SASB’s
work as a standards setter. The SASB’s due process is designed to produce standards for
information that is:
 reasonably likely to be material;
 decision-useful for companies and their investors; and
 cost-effective for corporate issuers.

SASB STANDARDS IDENTIFY INFORMATION THAT IS LIKELY TO BE MATERIAL

SASB standards address the sustainability topics that are reasonably likely to have material
impacts on the financial condition or operating performance of companies in an industry.
SASB recognizes that each company is responsible for determining what information is
material and what information should be included in its SEC filings. In identifying
sustainability topics that are reasonably likely to have material impacts, the SASB applies
the definition of “materiality” established under the U.S. securities laws.
According to the U.S. Supreme Court, information is material if there is “a substantial
likelihood that the disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the ‘total mix’ of information made
available.” 10
A duty to disclose material sustainability information may arise under the requirements of
Regulation S-K. Regulation S-K, which sets forth the specific non-financial-statement
disclosure requirements associated with Form 10-K and other SEC filings, requires that
companies describe known trends, events, and uncertainties that are reasonably likely to
have material impacts on their financial condition or operating performance in the
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) section of Form 10-K. Corresponding requirements exist for Forms 20-F and 40-F.
The MD&A requirement calls for companies to provide investors and other users with
material information that is necessary to form an understanding of the company’s financial
condition and operating performance, as well as its prospects for the future. 11 The SEC’s
interpretive guidance on disclosure requirements related to climate change and
cybersecurity highlight the applicability of other Form 10-K sections to sustainability-related
disclosure, namely the description of business (§229.101), and risk factors

10
TSC Industries v. Northway, Inc., 426 U.S. 438, 449 (1976)
11
SEC, FR-72, Commission Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations
(December 2003)

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(§229.503(c)). 12,13 It further reminds registrants that they are required to disclose, in
addition to the information expressly required by regulation, “such further material
information, if any, as may be necessary to make the required statements, in light of the
circumstances under which they are made, not misleading.” 14 In accordance with these
requirements, SASB standards help issuers identify and report on sustainability topics that,
substantiated by evidence, constitute known trends, events, and uncertainties that are
reasonably likely to have material impacts on companies in an industry.

SASB STANDARDS YIELD DECISION-USEFUL INFORMATION

SASB standards provide investors with decision-useful information on the sustainability
issues that are reasonably likely to materially affect near-, medium-, or long-term business
value. The decision-usefulness of sustainability information is enhanced when it is
representationally fair, useful, applicable, comparable, complete, verifiable, aligned,
neutral, and distributive. (See Page 19.)
For each topic identified in an industry, the SASB selects or develops decision-useful
accounting metrics to account for company performance on the topic. Accounting metrics
address sustainability impacts, as well as opportunities for innovation. Taken together, they
characterize a company’s positioning with respect to sustainability issues and the potential
for long-term value creation.
Public disclosure using SASB sustainability accounting standards facilitates:
 Peer-to-peer comparison and benchmarking of corporate performance on key
sustainability issues;
 More focused efforts by companies to manage risk and improve performance on
key sustainability issues;
 A comprehensive view of material sustainability risks and opportunities for investors;
 Integrated presentation of financial statements and material sustainability
information, allowing investors to better understand performance in context;
 Public access to regularly reported sustainability data via SEC filings and the SEC
EDGAR database; and
 Sustainability information that is reliable, trustworthy, and verifiable.

12
SEC, Commission Guidance Regarding Disclosure Related to Climate Change (February 2010)
13
CF Disclosure Guidance: Topic No. 2 Division of Corporation Finance guidance regarding disclosure obligations relating to cybersecurity
risks and cyber incidents (October 2011)
14
17 C.F.R. §230.408 and §240.12b-20, Additional information.

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SASB STANDARDS ARE COST-EFFECTIVE FOR CORPORATE ISSUERS

SASB standards are designed to provide a cost-effective way for companies to disclose
material, decision-useful sustainability information to investors. The SASB achieves this
objective in two key ways:
1. Because they focus on only those sustainability issues that are reasonably likely to
have material impacts, SASB standards identify the minimum set of topics for
consideration in each industry, the majority of which are already addressed in SEC
filings by many public companies in some fashion. 15
2. A significant percentage of the metrics in SASB standards are aligned with initiatives
already in use. As part of its standards-setting process, the SASB identifies and
documents existing metrics and practices used to account for performance on each
disclosure topic. When possible, the SASB harmonizes its standards with existing
metrics, definitions, frameworks, and management disclosure formats, both
industry-specific and general, thereby minimizing the corporate reporting burden.
The SASB currently references standards and metrics from over 200 organizations
such as CDP, EPA, OSHA, GRI, IPIECA, and many others.
Use of SASB metrics may also mitigate the need for the costly and time-consuming
questionnaires that investors, analysts, and ratings groups frequently use to obtain
sustainability information.

15
SASB, The State of Disclosure 2016 (December 1, 2016); SASB research shows that 69 percent of industry-leading companies currently
disclose information in SEC filings on at least three-quarters of the sustainability topics included in their industry standard, and 38
percent provide disclosure on every SASB topic. However, of those disclosures, only 24 percent include metrics while 53 percent use
boilerplate language.

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3. Fundamental Tenets of the SASB Approach to

Standards-Setting
The SASB takes a systematic approach to its standards-setting activities to ensure that its
standards identify industry-specific sustainability factors that are likely to have material
impacts, while also providing disclosure guidance that is cost-effective for issuers and
decision-useful for investors. To achieve these objectives, SASB standards are:
 Evidence-Based
 Market-Informed
 Industry-Specific

EVIDENCE-BASED
The SASB takes an evidence-based approach to assess whether sustainability topics are
likely to be of interest to the reasonable investor, and whether they are reasonably likely to
have material impacts on the financial condition or operating performance of the
company. In doing so, this approach considers evidence of interest to investors and
evidence of financial impact. In analyzing sustainability topics, the SASB looks for the
presence of both types of evidence, identifying topics that might be of interest to the
reasonable investor and assessing their potential for financial impact.
This method enables a relative prioritization of sustainability topics relevant to investors and
suitable for inclusion in companies’ SEC filings; it is an indication that a disclosure standard
is warranted, but it is not a determination of materiality. This process allows for an
understanding of which issues are important to address in standards setting. It also ensures
that SASB standards are kept to a minimum set of topics that are reasonably likely to
constitute material information.
It is important to note that SASB analysts seek evidence of interest and financial impact for
sustainability disclosure topics, while the metrics in SASB standards together characterize
performance on a particular topic. In other words, the SASB assesses the likely materiality
of sustainability issues at the level of disclosure topics and not metrics.

Evidence of Interest to a Reasonable Investor

The SASB assesses the likely materiality of sustainability topics in part by looking at
evidence of interest from the perspective of a reasonable investor.
Evidence of interest to a reasonable investor is assessed along five factors:
1. Financial Impacts & Risk: This factor assesses the likelihood that corporate
performance on the topic will have a direct and measurable impact on near- or
medium-term financial performance.

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2. Legal, Regulatory & Policy Drivers: Existing, changing, or emerging regulation

may influence company actions and affect financial performance by forcing the
internalization of certain costs associated with compliance and/or by creating upside
opportunity associated with new products, markets, or business models that
become viable under a different regulatory regime.
3. Industry Norms & Competitive Drivers: Peer actions and disclosure on industry
issues may create investor pressure for higher standards of performance related to
the management and disclosure of certain sustainability topics.
4. Stakeholder Concerns & Social Trends: Stakeholders may raise concerns that
could influence medium- or long-term financial or operating performance (or create
acute short-term financial impacts) through loss of license to operate, reputational
damage, changes in customer demand, and disruptions to business viability.
5. Opportunities for Innovation: New products and business models to address
industry sustainability challenges can drive market expansion or potentially create a
disruptive change that provides new sources of competitive advantage. Financial
impacts and risks associated with these innovations may be of interest to investors.
Evidence of Financial Impact
The SASB assesses the actual or potential impact of sustainability issues on the financial
condition or operating performance of companies. The SASB considers whether
management (or mismanagement) of the topic has the potential to materially affect the
valuation of a company or its operational or financial performance.
The SASB conducts extensive research to identify evidence of financial impact associated
with sustainability issues, and relies on robust and diverse sources of credible evidence that
support different types of financial impacts. The SASB primarily analyzes two types of
information: (i) industry-level and (ii) company-specific.
Industry-level information provides the financial and regulatory context in which companies
in that industry operate, as well as context on how the industry as a whole is affected by,
or impacts, sustainability issues (e.g., large contributors to greenhouse gases, industries
with high injury or fatality rates, average industry costs associated with energy
consumption, etc.). This information is drawn from credible sources such as databases of
U.S. government agencies (environmental, safety data), industry research products,
academic studies, and financial publications, among others. The SASB conducts additional
analysis of data where necessary to assess industry performance relative to other industries
and over time.
Company-specific information provides tangible examples of actual or potential impact on
company valuation or financial performance resulting from sustainability issues (e.g., large
or frequent fines faced by companies, cost savings through implementation of energy
efficiency measures, and reputational and market damage from customer or stakeholder
action). This information is derived from company reporting through sustainability reports

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and websites, as well as regulatory filings, news media, and case studies from NGOs and
research organizations, among others.
Taken together, this information provides an overall picture of whether the management
or mismanagement of the topic has the potential to affect the valuation or operational and
financial performance of most companies in an industry. As far as possible, in order to
ensure that the disclosure topics identified are relevant for an industry over time, the SASB
evaluates evidence based on the underlying industry structure, regulatory environment,
and financial drivers of an industry, and by focusing on long-term trends rather than
anecdotal impacts from a specific corporation. This research is supplemented by evaluating
the current state of affairs in an industry or sector, to ensure emerging sustainability topics
are included in the standards as they become relevant.
In conducting its research, the SASB identifies specific types of financial impacts, namely
revenues and costs, assets and liabilities, and/or the cost of capital.
 Revenue/Costs: Projected revenue, earnings, market share, and/or pricing power
can be impacted by material sustainability factors. Costs can be impacted by
operational efficiency (i.e., energy, labor, supply chain), by investments needed for
compliance with sustainability-related regulation, or through the availability or price
of raw materials or other inputs for production.
 Assets/Liabilities: Sustainability factors can affect both tangible assets and
intangible assets. For example, water scarcity can impair agricultural and grazing
land as well as nearby processing facilities, while labor and community relations can
impact brand value. Liabilities can also be impacted by weather-related events,
while litigation and regulatory actions related to sustainability issues can create
contingent liabilities.
 Cost of Capital/Risk Profile: A company’s financial condition and market
valuation can be impacted by sustainability factors through increases to its cost of
capital or limitations on its access to capital. Better disclosure enables a more
complete understanding of exposure to risk and more accurate pricing of risk
associated with volatile performance and/or industries with an unstable outlook.
The financial impact of sustainability issues can be actual or potential, positive or negative
(i.e., risks or opportunities), chronic or acute, and priced or unpriced. Actual impacts, for
example, might materialize in the form of existing regulation requiring capital expenditures
or current shifts in consumer demand. Potential impacts may arise from pending regulation
on sustainability issues or from threats of competition for market share or capital. Acute
impacts may result from a catastrophic event such as an unplanned environmental
discharge or breach of customer privacy or safety. Acute impacts affect price in the short
term and are often predicated by poor records of managing these types of risks when
compared to industry norms. Chronic impacts can include the long-term erosion of value
associated with an asset that may be stranded in the face of regulation (oil reserves, for

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 SASB CONCEPTUAL FRAMEWORK

example) and/or the threat of divestment from investors. Chronic impacts can also include
value creation through improved workforce training or cost savings due to increased
operational efficiency. Risks that are priced are generally well disclosed and are better
understood by investors. Risks that are unpriced are generally undisclosed or poorly
disclosed.
When assessing sustainability issues with the potential for material financial impact, the
SASB considers the two-part test that the SEC has established for companies to determine
whether known trends, demands, commitments, events, or uncertainties should be
disclosed in the MD&A section of Form 10-K: 16
In weighing its duty to disclose information in MD&A, management must make two
assessments where a trend, demand, commitment, event or uncertainty is known:
1. Is the known trend, demand, commitment, event or uncertainty likely to
come to fruition? If management determines that it is not reasonably likely
to occur, no disclosure is required.
2. If management cannot make that determination, it must evaluate objectively
the consequences of the known trend, demand, commitment, event, or
uncertainty on the assumption that it will come to fruition. Disclosure is then
required unless management determines that a material effect on the
registrant's financial condition or results of operations is not reasonably likely
to occur.

MARKET-INFORMED
Although evidence-based research provides a foundation for the SASB’s standards-setting
process, the outcomes are shaped in large part by feedback from participants in the capital
markets—i.e., corporate issuers and mainstream investors. The SASB actively solicits input
and carefully weighs all stakeholder perspectives in considering which aspects of a
sustainability topic warrant standardized disclosure and in determining how to frame,
describe, and measure those aspects for the purposes of standardization. However,
although the SASB considers the views of all stakeholders, its determinations are guided by
its core objectives to provide the users and providers of financial capital with material,
decision-useful, cost-effective disclosures. Further, the evidence basis of the standards,
underpinned by the legal basis of materiality in the U.S., provides useful guidance in the
face of competing stakeholder inputs.
As part of the SASB’s due process, its standards have undergone vetting by industry
experts, comprising a balanced group of one-third corporate professionals, one-third
investors, and one-third other stakeholders. The SASB aims to consider sustainability topics
for standards-setting when consensus among issuers and investors indicates that the topic

16
SEC, Management’s Discussion and Analysis of Financial Condition and Results of Operations; Certain Investment Company
Disclosures, Release No. 33-6835 (May 18, 1989) [54 FR 22427]

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is reasonably likely to have a material impact on most companies in the industry.

Furthermore, the SASB solicits feedback from industry experts to evaluate how well its
proposed metrics meet the criteria outlined in Section 4, and incorporates input as
appropriate before issuing new standards or updates to standards.
The SASB’s standards ratification and maintenance process is further guided by market
feedback in that it is transparent, open to public comments, and governed by the SASB,
which comprises experts in standards setting whose deliberations are supported by external
sector and technical expertise. (See the accompanying SASB Rules of Procedure document
for details on governance of the standards-setting process.)
Finally, the SASB engages in ongoing consultation with both issuers and investors to ensure
the maintenance of decision-useful, cost-effective standards. As changes occur in an
industry’s competitive context, in the broader sustainability landscape, or in the interests of
the reasonable investor, this bottom-up, market-based approach is key to ensuring that the
SASB standards evolve to support market needs.

INDUSTRY-SPECIFIC
Analyzing the materiality of sustainability information requires an understanding of the
specific impact of business on society and the environment, as well as the impact of
sustainability challenges on business. Companies operating in a specific industry are more
likely than companies in disparate industries to have similar business models and use
resources in similar ways. Therefore, they are likely to have similar sustainability risks and
opportunities. The SASB develops sustainability accounting standards at the industry level,
focusing on issues that are closely tied to resource use, business models, and other factors
at play in the industry. As a result, financial analysts, who also evaluate corporate
performance within an industry context, can easily integrate and assess material
sustainability factors alongside financial fundamentals.
Traditional industry classification systems present a challenge to SASB’s industry focus
because they do not always group industries with common sustainability characteristics. In
addition, traditional classification systems establish hierarchies and layers of industries
based on revenue and other economic variables, providing less visibility—and access to
capital—for industries with greater sustainability risks or opportunities but smaller
economic footprints.
To address these issues, the SASB developed SICS™, which builds on traditional
classification systems (e.g., SIC, GICS, and BICS) and categorizes sectors and industries in
accordance with a fundamental view of their business models, their resource intensity and
sustainability impacts, and their sustainability innovation potential. SICS™ classification of
individual companies can be publicly accessed at www.sasb.org using company ticker
symbols.

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Systemic Sustainability Issues

Certain prominent sustainability issues, such as climate change, water use, human capital,
and political contributions, generate great interest from a variety of parties, including the
media, the public, government agencies, nongovernmental organizations, and investors.
However, the SASB subjects these issues to the same evidence-based, market-informed
approach used for all potential disclosure topics.
Through its industry focus, the SASB systematically assesses the relevance of each topic and
the potential for material impacts on companies in each SICS™ industry. This ensures that
topics recommended for disclosure are included in the standards based on evidence
amassed in an industry context as well as on input from a balanced group of industry
experts.
When topics are determined to be reasonably likely to have material impacts in more than
one industry, they are referred to as cross-cutting issues. However, from one industry to
the next, the SASB may recommend different approaches to the disclosure of information
related to these topics. This is because general sustainability topics often have unique
impacts on different business models, and analysts may need industry-specific performance
metrics to assess risk and/or future outlook. For example, climate risk is present in many
industries, but the performance metrics are often unique. In real estate, investors are
interested in the vulnerability of assets and the quality of building stock. In health care,
event preparedness and business-continuity risk is important, as are changing disease
migration patterns. In oil and gas, the carbon intensity of reserves and current emissions
are important to assess fundamental and relative risk. The SASB evaluates the best metrics
to characterize performance on a topic within an industry context. However, consistent
treatment of similar issues and similar accounting metrics across industries is preferred
whenever possible to make the system more useful to investors with diversified portfolios.

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4. Guiding Principles and Criteria for Standards

Development
As outlined in Section 3, the SASB’s approach to standards development is designed to be
evidence-based, to include broad stakeholder participation, and to reflect industry-specific
sustainability impacts. As the SASB carries out this work, a set of principles (at the
disclosure topic level) and criteria (at the metric level) guide internal decisions and
interactions with external stakeholders who are involved in helping the SASB set industry
standards. The principles are used in conjunction with the SASB’s core objectives (defined
in Section 2) to inform the final selection of topics for which standards are developed
within an industry. Meanwhile, the criteria are used to rigorously evaluate the quality of
the accounting metrics that are proposed for use in describing corporate performance on a
topic, ensuring that they facilitate disclosure of information that is material, decision-
useful, and cost-effective.

PRINCIPLES FOR TOPIC SELECTION

The SASB considers the following set of principles when identifying sustainability topics
that warrant an industry standard. Each potential topic is evaluated against these principles
before being proposed for inclusion in an industry standard, helping to focus the standards
on only the critical sustainability topics that are most likely to require disclosure under
Regulation S-K.
 Potential to affect corporate value. Through research and stakeholder input, the
SASB identifies topics that can or do affect operational and financial performance
through three channels of impact: (1) revenues and costs, (2) assets and liabilities,
and (3) cost of capital or risk profile.
 Of interest to investors. The SASB addresses issues likely to be of interest to
investors by assessing whether a topic emerges from the “total mix” of information
available through the existence of, or potential for, impacts on five factors: (1) direct
financial impacts and risk; (2) legal, regulatory, and policy drivers; (3) industry
norms, best practices, and competitive drivers; (4) stakeholder concerns that could
lead to financial impacts; and (5) opportunities for innovation.
 Relevant across an industry. The SASB addresses topics that are systemic to an
industry and/or represent risks and opportunities unique to the industry and which,
therefore, are likely to apply to many companies within the industry.
 Actionable by companies. The SASB assesses whether broad sustainability trends
can be translated into industry-specific topics that are within the control or
influence of individual companies.
 Reflective of stakeholder (investor and issuer) consensus. The SASB considers
whether there is consensus among issuers and investors that each disclosure topic is

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reasonably likely to constitute material information for most companies in the

industry. 17

CRITERIA FOR ACCOUNTING METRICS

At the level of accounting metrics, the SASB considers the following set of criteria when
evaluating potential metrics to measure performance on aspects of each sustainability
topic:
 Fair Representation: A metric adequately and accurately describes performance
related to the aspect of the disclosure topic it is intended to address, or is a proxy
for performance on that aspect of the disclosure topic;
 Useful: A metric will provide useful information to companies in managing
operational performance on the associated topic and to investors in performing
financial analysis;
 Applicable: Metrics are based on definitions, principles, and methodologies that
are applicable to most companies in the industry based on their typical operating
context;
 Comparable: Metrics will yield primarily (a) quantitative data that allow for peer-to-
peer benchmarking within the industry and year-on-year benchmarking for an
issuer, but also (b) qualitative information that facilitates comparison of disclosure;
 Complete: Individually, or as a set, the metrics provide enough data and
information to understand and interpret performance associated with all aspects of
the sustainability topic;
 Verifiable: Metrics are capable of supporting effective internal controls for the
purposes of data verification and assurance;
 Aligned: Metrics are based on those already in use by issuers or are derived from
standards, definitions, and concepts already in use by issuers, governments, industry
associations, and others
 Neutral: Metrics are free from bias and value judgment on behalf of the SASB, so
that they yield an objective disclosure of performance that investors can use
regardless of their worldview or outlook; and
 Distributive: Metrics are designed to yield a discernable range of data for
companies within an industry or across industries allowing users to differentiate
performance on the topic or an aspect of the topic.

17
During the SASB’s provisional phase of standards-setting, it formed Industry Working Groups composed of a balanced representation
of investors, corporate professionals, and other stakeholders. When a topic failed to reach at least 75 percent consensus that it would
likely constitute material information and therefore warrant a standard, it was either flagged for further review (if close to 75 percent or
respondents expressed significant uncertainty) or not carried forward. On average, more than 82 percent of investors, issuers, and other
stakeholders agreed on the likely materiality of the disclosure topics included in the SASB’s provisional phase standards. SASB Rules of
Procedure further describes how market feedback continues to inform the SASB’s standards ratification and maintenance process.

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5. Elements of Standardized Presentation

Each SASB standard is presented in a structured manner to ensure consistent application
and facilitate cost-effective, decision-useful information. Broadly speaking, SASB standards
comprise (1) disclosure guidance; and (2) sustainability accounting standards on
sustainability topics for use by U.S. and foreign public companies in their annual filings
with the SEC, such as Forms 10-K, 20-F, or 40-F. To the extent relevant, SASB standards
may also be applicable to other filings with the SEC, such as Form 10-Q, Form S-1, and
Form 8-K.
More specifically, each SASB standard includes the following standardized elements:

GENERAL DISCLOSURE GUIDANCE

The standard provides general guidance for issuers in using SASB standards, including the
scope, reporting format, timing, limitations, and forward-looking statements. The SASB’s
disclosure guidance identifies sustainability topics at the industry level, which—depending
on specific operating context—may constitute material information for a company within
that industry. Each company is ultimately responsible for determining what information is
material, and what information the company may be required to disclose in its Form 10-K,
Form 20-F, or other SEC filings. Therefore, SASB standards are intended as guidance for
companies as they perform their own determinations of materiality and disclosure
obligations.

INDUSTRY DESCRIPTION
The standard describes the industry that is the subject of the standard, including any
assumptions about the business model and industry segments that are included or not
included.

TOPIC AND TOPIC DESCRIPTION

The standard lists and briefly describes how management or mismanagement of the
various aspects of the topic may affect value creation.

SUSTAINABILITY ACCOUNTING METRICS

The standard provides companies with standardized quantitative—or, in some cases,
qualitative—metrics intended to measure performance on each disclosure topic or an
aspect of the topic.
Sustainability accounting metrics should be accompanied by a narrative description of any
material factors necessary to ensure completeness, accuracy, and comparability of the data
reported, where not addressed by the specific accounting metrics, including strategy,
competitive positioning, degree of control, performance, and trends over time.

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TECHNICAL PROTOCOLS
For each sustainability accounting metric, technical protocols provide guidance on
definitions, scope, accounting guidance, compilation, and presentation that may serve as
the basis for “suitable criteria,” defined by the PCAOB’s AT Section 101 18 as having the
following attributes:
 Objectivity: Criteria should be free from bias.
 Measurability: Criteria should permit reasonably consistent measurements,
qualitative or quantitative, of subject matter.
 Completeness: Criteria should be sufficiently complete so that those relevant
factors that would alter a conclusion about subject matter are not omitted.
 Relevance: Criteria should be relevant to the subject matter.

ACTIVITY METRICS
The standard includes activity metrics to measure the scale of the issuer’s business,
providing operational context and facilitating normalization of SASB accounting metrics,
which is important for the analysis of related disclosures.
Activity metrics may include high-level business data such as total number of employees,
quantity of products produced or services provided, number of facilities, or number of
customers. They may also include industry-specific data such as plant capacity utilization
(e.g., for specialty chemical companies), number of transactions (e.g., for internet media
and services companies), hospital bed days (e.g., for health care delivery companies), or
proven and probable reserves (e.g., for oil and gas exploration and production companies).
An issuer’s disclosure of these activity metrics should:
 Convey contextual information that would not otherwise be apparent from SASB
accounting metrics.
 Be deemed generally useful for investors relying on SASB accounting metrics in
performing their own calculations and creating their own ratios.
 Be explained and consistently disclosed from period to period to the extent they
continue to be relevant. 19

18
PCAOB, AT Section 101 – Attest Engagements
19
FASB Business Reporting Research Project, Improving Business Reporting: Insights into Enhancing Voluntary Disclosures (January 29,
2001)

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Appendix: SASB Sustainable Industry

Classification System™ (SICS™)
Where traditional industry classification systems group companies by sources of revenue,
the SASB’s approach considers the resource intensity of firms, and groups industries with
like sustainability characteristics, including risks and opportunities.
Consumption ▪ Coal Operations
▪ Agricultural Products ▪ Iron & Steel Producers
▪ Meat, Poultry & Dairy ▪ Metals & Mining
▪ Processed Foods ▪ Construction Materials
▪ Non-Alcoholic Beverages Renewable Resources & Alternative Energy
▪ Alcoholic Beverages ▪ Biofuels
▪ Tobacco ▪ Solar Energy
▪ Household & Personal Products ▪ Wind Energy
▪ Multiline and Specialty Retailers & Distributors ▪ Fuel Cells & Industrial Batteries
▪ Food Retailers & Distributors ▪ Forestry & Logging
▪ Drug Retailers & Convenience Stores ▪ Pulp & Paper Products
▪ E-Commerce
▪ Apparel, Accessories & Footwear Resource Transformation
▪ Building Products & Furnishings ▪ Chemicals
▪ Appliance Manufacturing ▪ Aerospace & Defense
▪ Toys & Sporting Goods ▪ Electrical & Electronic Equipment
Financials ▪ Industrial Machinery & Goods
▪ Containers & Packaging
▪ Commercial Banks
▪ Investment Banking & Brokerage Services
▪ Asset Management & Custody ▪ Education
Activities ▪ Professional Services
▪ Consumer Finance ▪ Hotels & Lodging
▪ Mortgage Finance ▪ Casinos & Gaming
▪ Security & Commodity Exchanges ▪ Restaurants
▪ Insurance ▪ Leisure Facilities
Health Care ▪ Cruise Lines
▪ Biotechnology ▪ Advertising & Marketing
▪ Media Production & Distribution
▪ Pharmaceuticals
▪ Medical Equipment & Supplies ▪ Cable & Satellite
▪ Health Care Delivery Technology & Communications
▪ Health Care Distributors ▪ Electronic Manufacturing Services & Original
▪ Managed Care Design Manufacturing
Infrastructure ▪ Software & IT Services
▪ Electric Utilities ▪ Hardware
▪ Gas Utilities ▪ Semiconductors
▪ Water Utilities ▪ Telecommunications
▪ Waste Management ▪ Internet Media & Services
▪ Engineering & Construction Services Transportation
▪ Home Builders ▪ Automobiles
▪ Real Estate Owners, Developers & Investment ▪ Auto Parts
Trusts ▪ Car Rental & Leasing
▪ Real Estate Services ▪ Airlines
Non-Renewable Resources ▪ Air Freight & Logistics
▪ Oil & Gas – Exploration & ▪ Marine Transportation
Production ▪ Rail Transportation
▪ Oil & Gas – Midstream ▪ Road Transportation
▪ Oil & Gas – Refining & Marketing
▪ Oil & Gas – Services

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Sustainability Accounting Standards Board
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