The Sustainability Accounting Standards Board is seeing more desire from investors for improved sustainability reporting, as evidenced by a wave of comment letters to the Securities and Exchange Commission.

In April the SEC issued a concept release asking for public comments on modernizing the disclosure requirements under Regulation S-K that public companies need to make in their periodic reports. While only a little over 3 percent of the concept release discussed sustainability disclosures, 66 percent of the comment letters received by the SEC addressed the issue, according to SASB.

SASB submitted its own comment letter in July to the SEC on Regulation S-K, noting there has been an enormous increase in investor interest in sustainability-related information since the last time the SEC evaluated the requirements. Regulation S-K already mandates that companies disclose material sustainability information, SASB pointed out, but more than 40 percent of disclosures on Form 10-K consist of little more than vague boilerplate language. The group argues that effective sustainability disclosure requires standards.

SASB has been rolling out a series of provisional sustainability accounting standards for 79 different industries in consultation with accounting and financial experts and industry representatives (see SASB Completes Provisional Sustainability Standards).

“We don’t think there needs to be more disclosure; we think there needs to be better disclosure,” SASB founder and CEO Dr. Jean Rogers told Accounting Today. “There’s quite a bit of disclosure already on these types of factors. In fact our research shows that 75 percent of the topics that are in the SASB standards are already acknowledged in the Form 10-K and the other mandatory filings with the SEC. Given that three-quarters of the topics are already disclosed, that’s a pretty good indication that companies are already making an assessment of materiality and are already fulfilling their existing obligations under Regulation S-K for what needs to be disclosed to investors. However the vast majority of that disclosure is not decision useful to investors. It’s boilerplate statements. That’s where we believe we can help to improve the quality of disclosure, and that is what we have written to the SEC about.”

SASB is in the process of assessing the feedback it has received in response to its provisional standards during its “consultation phase.” The board plans to do a cost/benefit analysis in preparation for codifying the final standards by September 2017, in time for companies’ year-end filings. Rogers expects SASB will be tweaking about 10 percent of the metrics in response to the feedback.

Many companies are already using some of the standards, she noted, although she acknowledged that SASB incorporated what were already some of the most widely used metrics into its standards.

“About 14 percent of companies currently use at least one SASB metric in their 10-K,” said Rogers. “Now I’m not going to imply that there’s causation there, that because the standards are out, companies are using them. What I actually think is happening is that we have selected metrics that are already in use by companies to describe material impacts. That tells me we’ve at least gotten the metrics right, and a certain percentage of the time they are in fact already in use, not only in sustainability reports, but actually in the 10-K by companies.”

She anticipates that once the provisional standards are finalized next year, companies will begin to use them more consistently and begin investing in internal controls and approvals to get them into the regular 10-K process.

The most prevalent types of sustainability metrics right now appear to be environmental disclosures. Product safety is another frequently cited subject.

“It could be automobile safety, it could be food safety, but safety is more easily quantified and measurable,” said Rogers. “We see that type of data as well as data on water use and energy use, those types of factors that are more straightforward to measure than some of the other factors.”

As for objections that such disclosures could expose companies to more lawsuits, she has an answer.

“Oftentimes companies are reporting on much more than this and in much greater detail in their sustainability reports, on their websites and in questionnaires that they do for investors, rating agencies and others,” said Rogers. “But that information is uncontrolled. It’s going out at different times, to different investors and different companies. All of those actually present liability for the company, not better disclosure in the 10-K to investors in a controlled way, in an audited way. That presents less risk to a company than what is going on now.”

As it works to finalize the standards, SASB has been producing guides to help companies and investors implement the standards, while also working on a legal guide, technical bulletins and other materials.

“We’ve done an implementation guide, which is for companies to begin to look into how to integrate this into the 10-K process,” said Rogers. “We’ve done an engagement guide for investors on how to engage with corporate management and talk about these issues. We have other investor guides planned for investors that use data and do integration of these factors into valuation and other types of quantitative methods. Then we have a legal guide that we plan to update, and we’ll also begin some technical bulletins on various issues. We have a draft now on climate risk, which is one of our most ubiquitous issues. We’ll do some other technical guides there as well.”

SASB also plans to continue to refine the standards in response to input from stakeholders, following the lead of the Financial Accounting Standards Board.

“Beyond codification of the standards, we’ll be continuing to work with investors and companies on an ongoing basis to take market feedback, to do what would be considered [post] implementation review in the accounting world to look at how the standards are working, to take feedback, and to go into a regular cycle of agenda setting, making sure that we’re keeping the standards up to date and being responsive to market feedback on a three- to five-year time horizon for updating them across all 79 industries,” said Rogers.