RE: Proposed Changes to the SASB Conceptual Framework and Rules of Procedure
Sustainability Accounting Standards Board (SASB)
1045 Sansome Street, Suite 450
San Francisco, CA 94111
To Whom It May Concern:
The American Bankers Association (ABA) appreciates the opportunity to comment on the Exposure Draft Proposed Changes to the SASB Conceptual Framework and Rules of Procedure (Proposal). The Proposal updates the basic concepts, principles, definitions, and objectives that guide the SASB in its approach to setting sustainability disclosure standards. SASB’s mission is “to establish industry-specific disclosure standards across environmental, social and governance topics that facilitate communication between companies and investors about financially material, decision-useful information. Such information should be relevant, reliable and comparable across companies on a global basis.” SASB currently publishes metrics specifically related to seventy-seven industries, of which six are related to banking.
With this in mind, the demand for sustainability-related information from companies has grown dramatically over the past few years and asset managers are often basing investment decisions and portfolio allocations on specific sustainability metrics. ABA members consist of lenders, investment bankers, asset managers, investment analysts and custodians and, consequently, bring perspectives from both the users of the information as well as the preparers.
ABA supports efforts to set cost-effective standards for voluntary sustainability disclosures and believes SASB is reaching out with questions that are generally appropriate for an organization seeking to set sustainability disclosure standards. With this in mind, we make the following observations:
ABA presumes that metrics issued by a disclosure standard-setter primarily for the benefit of investors will be included within company annual reports to investors. However, at this point, most companies will be unable to provide assertions, in accordance with the Sarbanes-Oxley Act, related to the effectiveness of internal controls over foreseeable climate-related estimates. In other words, the nascent nature of environmental risk management means that reliable quantitative measurements of relevant metrics may not be possible for many years.
We understand that SASB has not yet issued specific reporting standards that address climate change metrics in any substantial fashion. However, financing of greenhouse gas (GHG) emissions is at the forefront of banking sustainability discussions occurring today. With this in mind, a standard to estimate greenhouse gas emissions within bank lending portfolios would require methods to estimate emissions of bank borrowers and the many supply chains that support them. Generally accepted methods to measure such emissions are not in wide use today and, while methods could be developed in the near future, they may prove to be irrelevant if there are no infrastructural mechanisms to incentivize or enforce their accuracy. Until such mechanisms are in place, which may foreseeably include a carbon tax regime and audit requirements, it will be difficult to understand how to evaluate both the cost effectiveness and reliability of such information. Without reliability, such metrics can mislead both investors and other SASB stakeholders. Without reliability, most companies – fearing liability resulting from potential perceived misstatements – will choose not to disclose SASB metrics. As SASB continues to explore standards addressing climate and other environmental metrics, the Board must continue to evaluate such considerations so they maintain the high quality that a standard-setter should maintain. This may take many years before compliance becomes a reality.
The understanding of “financial materiality” to preparers of information may often conflict with those of investors, as investment decisions and portfolio allocations are now often based on specific thresholds related to nonfinancial (e.g. ESG-related) information. For example, ESG-related investment funds often have “yes/no” investment criteria related to board membership or involvement in activities considered “controversial”. Such metrics may not be considered financially material to the preparer, but they would be critical to these specific investors.
With this in mind, we also believe that investor priorities related to ESG topics can rapidly change and evolve. For example, an investor’s perception of a bank’s commitment toward addressing the environment can change significantly if their focus changes from the financing of Scope 1 and 2 GHG emissions (Direct and indirect emissions from sources that are owned or controlled by the company) to those of Scope 3 emissions (also including those in the company’s supply and value chains).6 In turn, materiality may also change if a company’s operations or products that address certain positive environmental objectives (for example, climate change adaption) are achieved at the expense of other environmental objectives (for example, sustainable use of water). SASB should, thus, work with the Securities and Exchange Commission and other financial regulators in addressing how preparers should consider materiality in this fast-evolving environment.
There may be no other private industry that is as dedicated to financial inclusion, including the access and affordability of its products and services by lower and middle income people, than the banking industry. Compliance with the Community Reinvestment Act further makes this a critical aspect of our business. With this in mind, however, ABA notes that current SASB standards related to this issue may omit significant efforts banks make toward such inclusion goals. For example, certain SASB metrics target only loan balances, while bank efforts can often additionally consist of investments in debt securities, as well as equity and partnership investments. Many banks also regularly make charitable contributions to foundations that are strictly dedicated toward the same inclusion goals.
With this in mind, we look forward to working with SASB in assessing the completeness of banking industry metrics and encourage SASB to further reach out to preparers in other industries to accomplish the same.
In summary, we support SASB’s efforts to become an important standard-setter of sustainability disclosures. However, we also believe that this will necessarily address climate risk measurement and such measurements may take years before reliable information will be available. On the following pages are more detailed responses to certain questions in the Proposal. They address not only the concerns expressed above, but also specific technical observations directly asked by SASB.
Thank you for your attention to this matter and for considering our recommendations. Please feel free to contact me ([email protected]; 202-663-4986) if you would like to discuss this further.
Sincerely,
Michael L. Gullette
