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The SASB Standards: An Overview for the Healthcare Sector

October 22, 2021 | Strategy, Investor Relations, ESG,

With the rise of ESG integration across capital markets, investors are looking beyond traditional financial statements to understand how sustainability issues impact enterprise value. While companies are expected to disclose more ESG-related information than ever before, disclosures currently lack the standardization of financial statements. In the U.S., the SEC requires companies to report financial information in line with Generally Accepted Accounting Principles (GAAP), which allows investors to use transparent and comparable financial data in their investment processes. However, most ESG data is voluntarily disclosed at this point and is not required to conform to a certain standard. Investors have been particularly vocal about the lack of uniformity for ESG data, as it inhibits their ability to compare companies and use sustainability information in their investment models.

The Sustainability Accounting Standards Board (SASB) was founded to address this gap, developing a set of industry-specific standards to help companies disclose ESG information tailored for investors. The SASB standards were designed so that companies can report the minimum set of ESG disclosures that are likely to constitute financially material information for their respective industries. They were also designed to enhance the comparability of ESG information across companies, empowering both investors and companies to make decisions and set strategies based on ESG performance. The SASB standards are maintained by the Value Reporting Foundation, which is working closely with other standard setters around the world to improve corporate ESG reporting.

As of September 2021, more than half of companies in the S&P 1200 and 65% of companies in the S&P 500 used the SASB standards in their external communications to investors. SASB has emerged as the preferred framework of some of the largest institutional investors, including BlackRock, Vanguard, and State Street. In particular, State Street has deeply integrated the SASB standards into its internal ESG rating system, R-Factor™, which provides ESG scores for thousands of companies. State Street specifically notes that publishing metrics aligned with the SASB standards will help improve a company’s R-Factor™ score over time, especially as other third-party ESG data providers and rating firms integrate SASB standards.

SASB has developed specific standards for 77 industries, including six within the healthcare sector:

  • Biotechnology & Pharmaceuticals
  • Drug Retailers
  • Health Care Delivery
  • Health Care Distributors
  • Managed Care
  • Medical Equipment & Supplies

SASB has identified 26 broad, sustainability-related business issues to guide companies’ ESG disclosures. However, SASB does not consider every issue to be financially material across all sectors. For example, within the healthcare sector, the issue of “GHG Emissions” is considered to be material only for companies in the Health Care Distributors industry, while “Supply Chain Management” is only material for companies in the Biotechnology & Pharmaceuticals and Medical Equipment & Supplies industries.

Considerations for Healthcare Companies

SASB uses the concept of financial materiality to focus disclosures on industry-specific issues, recognizing that increased disclosure can be burdensome for companies. For the healthcare sector, some SASB disclosure topics relate to information companies already disclose in accordance with regulatory requirements or industry best practices. SASB standards simply consolidate this information into a consistent format so investors and other stakeholders can make relevant comparisons among companies within the same industry. For example, data surrounding the total number of recalls issued is a disclosure topic for the Biotechnology & Pharmaceuticals, Drug Retailers, and Medical Equipment & Supplies industries. These disclosures should be relatively easy for companies to formulate because this information is readily available to the public through FDA databases.

While investors have led the call for increased ESG transparency so far, regulations regarding ESG disclosure are on the horizon in the U.S. The SEC launched a Climate and ESG Task Force in March 2021, and in July 2021, SEC Chairman Gary Gensler said that he directed his staff to “develop a mandatory climate risk disclosure rule proposal for the Commission’s consideration by the end of the year.” To proactively address both investor and regulatory expectations, we recommend companies consider publishing information according to SASB standards for their respective industry.

Since SASB reporting is currently voluntary, we have found that disclosures related to specific topics can vary considerably between companies within the same industry. SASB states that companies can publish their disclosures through a variety of reporting channels, including annual reports, sustainability reports, integrated reports, regulatory filings, corporate websites, and standalone SASB indices. At Gilmartin Group, we recommend that companies publish SASB indices to make this information easily accessible to investors and other stakeholders. A SASB index can be published as a standalone report, but it is best practice to include it as an appendix to a company’s full sustainability report.

At Gilmartin Group, our dedicated ESG team has extensive working knowledge of industry-leading ESG evaluation criteria. Recognizing that the ESG landscape is evolving rapidly, we plan to release relevant news, updates, and guidance more frequently to assist companies who want to take the next step of their ESG journeys. Contact our team today for guidance surrounding your ESG journey.

Patrick Smith, Analyst, ESG

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