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The SEC and Capital Markets in the 21st Century: Evolving Accounting Infrastructure for Today’s World

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For the latest paper in the Initiative on 21st Century Capitalism series, Robert Eccles and Jean Rogers detail the importance of the Sustainability Accounting Standards Board (SASB), created in 2010 to fill the market need for standardized sustainability disclosure. Heightened risks of emerging factors such as climate change, water scarcity and higher demand brought about by population growth in emerging markets has investors interested in how companies are prepared to manage new risks and opportunities.

While investor demand for sustainability information is rising, studies show that there are ways to maximize access to, and the utility of, this information for investors. First, investors are engaging in fairly unproductive and costly means to get the information they need – 89 percent request it directly from the company, and 50 percent sponsor or co-sponsor a shareholder proposal. Furthermore, investors could better use the information if it was standardized. Two-thirds of global institutional investors say that they would be more likely to consider this non-financial information when making investment decisions if common standards were used.

The Sustainability Accounting Standards Board (SASB) was created to fill the market need for standardized sustainability disclosure. SASB’s mission is to develop and disseminate sustainability accounting standards that help publicly-listed corporations disclose material factors in compliance with SEC requirements. SASB uses a rigorous process, rooted in evidence and informed by consensus, to develop its standards. Examples of SASB metrics elucidate how a sustainability issue, such as climate change, affects industries in different ways. Since its inception, the SASB has found success in ways including:

  • SASB has issued standards for 27 industries in four sectors, which constitutes 40 percent of SASB’s planned work.
     
  • More than 1,890 individuals—affiliated with companies with $9.5T in market capital, and investors representing $21T assets under management—have participated in SASB industry working groups.

The authors detail the drivers of the movement to create industry-specific sustainability accounting standards and how this work can fit within existing regulation to help companies disclose, and investors analyze, sustainability performance. The paper discusses how the capital markets have evolved—including the creation of the Securities Exchange Commission, the formation of FASB, and now, the formation of SASB—to provide investors with the information they need to make informed decisions in today’s world.

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