Sixty-eight of 77 industries significantly affected by climate risk, SASB says
SASB released an updated Climate Risk Technical Bulletin last week to help companies better understand how they can disclose climate risk in a manner that provides investors with helpful information.
SASB’s standards divide companies into 77 industries and provide industry-specific ESG reporting suggestions, based on financial materiality. As part of this latest review, SASB finds that 68 of the 77 industries are significantly affected in some way by climate risk, totaling 89 percent of the market capitalization of the S&P Global 1200.
‘Climate change is ubiquitous,’ says David Parham, director of research projects at SASB. ‘You can’t diversify away from the risk, so you need to understand how those risks manifest and how they can be responded to. That’s why it’s important to have the data to understand how companies are managing that risk and identifying exactly what it is.’
One of the issues the new bulletin aims to address is a previous lack of specific standards for companies when it comes to reporting on climate risk, Parham says. In this year’s annual status report published by the TCFD, the organization did a deep dive around standardization, he adds.
‘They looked at where they were finding pain points when it came to reporting data. Providers said that, within the metrics and targets, they lacked standardized and industry-specific metrics,’ he says. ‘We are trying to settle that gap by providing disclosure standards by industry and helping to give them the metrics to provide the capital markets with what they need.’
For example, in the automotive industry, SASB recommends that car companies break down the fleet of vehicles they are manufacturing and selling to customers – the numbers manufactured with traditional combustion engines, hybrid vehicles, electric vehicles and zero-emission vehicles. This will give investors data they can use to assess risk as there is a lot of pressure in the auto industry to cut down emissions, both from pledges made by manufacturers and from regulators, Parham says.
In oil and gas, companies are facing challenges related to the diversification of business models. ‘You have companies focused on core hydrocarbon production, so we look at what their reserves are and how resilient they are in different scenarios,’ Parham explains. ‘We have some companies diversifying away from fossil fuels and toward offshore wind and other renewable energy sources to recognize the strategic pivots some companies are making to diversify their business models.’
For real estate, SASB looks at physical risk. Companies should report where their properties are located and what type of risk they might be subjected to by events such as storms, flooding and natural disasters.
‘Our organization is doing everything it can to help educate markets on the role that standards can play,’ Parham says. ‘We have the standards themselves, which help the companies provide disclosure, but we need to provide commentary around why standardization is important, and what is important to disclose in terms of risk. We try to help show how standards can close the gap between reporting and available data.’
SASB has undertaken a number of measures – in partnership with other organizations – to simplify and streamline the ESG reporting landscape. In July 2020, SASB and GRI announced they would work together to provide guidance on joint implementation.
By September 2020, CDP, the Climate Disclosure Standards Board, the International Integrated Reporting Council and SASB announced a shared vision for enhanced sustainability accounting disclosures through integrated reporting. This was followed in December 2020 by a prototype climate-related financial disclosure standard.
Elsewhere, the IFRS Foundation continues to move ahead with plans to launch a sustainability standards board. Following a three-month consultation period on the standardization of sustainability reporting, during which time the IFRS received 576 comment letters, the body announced the formation of a Trustee Steering Committee in February 2021 to address the ‘growing and urgent demand to improve the global consistency and comparability in sustainability reporting.’