The State of Disclosure 2016 report by the Sustainability Accounting Standards Board (SASB), highlights some of the weaknesses in the financial disclosure of sustainability standards. It found that, while the majority of firms are reporting on sustainability factors, most are taking a "minimally compliant" approach to sustainability disclosure, providing the market with information "that is inadequate for making investment decisions". The SASB, the US non-profit organisation set up in 2011 to develop accounting standards for corporate sustainability disclosure, sets out how it aims to improve the effectiveness of SEC reporting through the use of standardised disclosure.

The report, which analysed the latest-available 10-K or 20-F filing for up to the top 10 companies in every industry, found deficiencies in the quality of disclosures relating to sustainability factors that affect financial conditions. One of the priorities for the SASB is that investors should be able to get a clear understanding of risks related to sustainability factors but it states that the current standards put “investors at a disadvantage when it comes to fully understanding their risk exposures.”

Vague, non-specific data used in more than 50% of disclosures

The SASB made the following key observations:

• Companies are embracing the sustainability topics in SASB standards: 69 per cent of companies reported on at least three-quarters of the sustainability topics included in their industry standard, and 38 per cent provided disclosure on every SASB topic.
• While a majority of companies acknowledge that sustainability factors identified in the SASB standards have material impacts on their business, the most common form of disclosure was “generic boilerplate language”, which is inadequate for investment decision-making. The SASB writes: “Such vague, non-specific information was used 53 per cent of the time when companies addressed a SASB topic.”
• Fewer than a quarter of companies (24 per cent) use metrics of sustainability-related disclosures and the metrics used tended were non-standardized, lacking comparability from one industry firm to the next.

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CTMfile take: This report goes into more detail on the effectiveness of sustainability disclosure, including how it differs across industries, sectors, topics, market capitalization and region. This is a hot topic that will require more dedicated focus from financial departments in future.