SASB opens new project to set standards for plastics reporting

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The Sustainability Accounting Standards Board voted during an online meeting last week to open a new standard-setting project to address single-use plastics and bio-alternatives in the chemicals and pulp and paper industries.

Increased public scrutiny of the environmental impacts of plastics use has led to increased regulation and changing customer demands for packaging, creating risks and opportunities for companies in key industries and their investors. The new project was unanimously approved by the board. It will deal with important implications raised through evidence-based research and market consultation. The SASB staff plans to start doing further research and consultations with a goal of proposing updates to the industry standards in the next six months for board review and, if approved, public comment.

“It's on the risks and opportunities related to plastics that we had been doing research on for the last several months, thinking about it,” SASB chair Jeffrey Hales told Accounting Today. “Before we dive into a standard-setting project, there's always some research that goes on. This was one of the projects that we had surfaced in the research we were doing earlier along the way to try to get more feedback on it and also to help the public to be aware of that project as well.”

The project is not dealing so much with the disposal, production or use of plastics in general. “It has more to do with the pulp and paper industry as well as the chemicals industry,” said Hales, “They are alternatives to ways you could be creating plastics. It is an interesting opportunity and future change that could affect the way that businesses operate going forward. So we’re helping investors to understand what a company's strategy is around it. We do have other opportunities to think about the users of plastics, but this is really more about the producers.”

The project won’t focus so much on encouraging the producers to use more recyclable materials or less toxic materials. “We’re not trying to be judgmental on what we think the right strategy is going forward, but we’re really trying to facilitate a conversation between investors and companies around the issues,” said Hales. “Companies get to decide what they think the potential benefit is from developing new ways of making biodegradable plastic. What we're interested in digging into more is the extent to which companies are thinking about and managing these issues and helping make sure that there are links to the company's operations and the financial impact if they want to engage in them. If they take a different strategy, is that actually going to result in different financial statements going forward? And are investors interested in this? That's really what we're trying to do is help facilitate that conversation with the idea that companies that manage these risks have opportunities as well. That's where the capital will then flow without us saying what the right percentage would be for something like a target.”

During the public meeting, SASB also reviewed the next steps on two of its ongoing standard-setting projects. First, the board discussed a preliminary decision to add a Tailings Management topic to the SASB standards for the metals & mining and coal operations industries. This new topic builds on the existing coverage of tailings facilities in the SASB standards to more completely address an issue that is receiving significant attention from investors in the wake of recent high-profile events. Second, the board members discussed a preliminary decision to remove an accounting metric (FN-AC-550a.1) from the Systemic Risk topic in the Asset Management & Custody Activities industry because it no longer provides a representationally faithful measure of liquidity risk in light of regulatory developments. The staff identified additional areas in which the topic’s scope and associated metrics may be enhanced and will therefore continue research and consultation. The members supported the preliminary decisions for both these projects.

The meeting also included updates on some ongoing projects. The SASB staff presented some of the main highlights of consultations held to date for the Content Moderation on Internet Platforms research project, including a taxonomy of three key social themes and the industries to which they apply. The staff also sought the board members’ input about ongoing revisions to the Conceptual Framework and Rules of Procedure projects. Upon completion of the revision process, the revised documents will be issued for public comment, subject to Standards Board approval. SASB expects the public comment periods for both documents will begin in August.

SASB held the meeting online as travel has been severely restricted because of the COVID-19 pandemic. ““Under the direction of the Standards Board, the SASB staff is actively advancing 10 standard-setting and research projects,” said SASB director of research — standards Bryan Esterly in a statement. “In addition, we are closely monitoring impacts of the COVID-19 pandemic, which has aspects that relate to all five of SASB’s sustainability dimensions: the environment, social capital, human capital, business model and innovation, and leadership and governance. Our analysis of these trends, as well as engagement with companies and investors, may give rise to new issues for consideration for standard-setting or new thinking about the issues already addressed in the standards.”

Hales sees connections between the impact of the pandemic on companies, which helps drive more support from companies who see a need for sustainability reporting. “When we talk about sustainability issues, we're often talking about things that are risks and opportunities that are coming from managing some of the longer-term issues that companies face that are still material,” he said. “It may not yet meet the definition of an existing asset or a liability, but certainly some of those assets and liabilities do relate to environmental, social and human capital issues. One of the things that's happening with the current pandemic is that it has rushed forward in a major way, with an immediate financial impact, a number of issues related to human capital, social capital, and the health and safety of employees and customers, and a company's ability to actually engage in the work that they want to do when it’s safe for their customers and employees. What we're seeing are huge implications from a financial standpoint. You just look at the various earnings releases and regulatory filings that are happening. There's a larger discussion around COVID because it’s so immediate right now. The longer-term perspective is it has helped people to realize that there are these issues about human capital and social capital that need to be managed and that there are implications. We're going to continue thinking about it from our perspective at SASB in terms of how it helps us to understand where our standards are working well and where there may be gaps.”

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