SASB Chapter 4 Vocab Flashcards
Interpretive Guidance
Some regulators provide a form of Interpretive guidance. Interpretive guidance clarifies or elaborates on the application of existing guidance to sustainability information. Rather than creating new disclosure requirements, interpretive guidance relies on existing reporting rules and procedures. Helps companies understand their responsibility to disclose sustainability information within the context of existing reporting practices. This is because regulators understand that although ESG information may not be explicitly identified in regulatory definitions of ‘materiality’, ESG information can be material in some circumstances.
Legislative or Regulatory Impacts
Potential to directly or indirectly lead to changes in profit or loss arising from increased or decreased demands for a company’s goods or service.
International Accords
Should disclose material impacts of international agreements and protocols regarding climate change mitigation.
Indirect Consequences of Regulation or Business Trends
Risks, as well as opportunities, arising from developments in climate change law, politics, or technology should be considered for disclosure if they are determined to
be material
Physical Impacts of Climate Change
Various climate change events may affect a companies operations and financial performance should be disclosed.
By interpreting sustainability disclosure within existing legal frameworks, regulators,
reporters, and investors alike can leverage existing processes and contextualize sustainability information within established, widely understood objectives.
Principles-Based Disclosure Guidance
Benefit in allowing companies to choose what information would be most relevant for users. Provisions aim to yield qualitative information and/or quantitative metrics while also allowing companies to be flexible in their decisions to disclose specific metrics.
Rules-Based Disclosure Guidance
In contrast a Rules-Based details specific reporting formats and standards with relatively high degree of detail, principles-based provides a list of tenets that companies use to
guide their reporting process
Australian Securities and Investments Commission (ASIC) 2019 Regulatory Guide 228 and 247:
Issued two regulatory guides, a form of interpretive guidance, that required climate
change reporting in a company’s prospectus to retail clients or in its annual operating
and financial review.
* Corporations Act of 2001; dictates disclosure requirements to maintain listed status. Explicitly lists climate risk as an example of common risk that may need to be disclosed in a prospectus or annual report and highlights climate change as a potential
risk that might impact impairment calculations.
Impairments Calculations
To calculate the impairment of an asset, take the carrying
value of the asset (its historical cost minus accumulated depreciation) and subtract its fair market value.
Directive 2014/95/EU - “The non-financial Reporting Directive”
The EU NFRD amended a previous accounting directive to require a large companies to disclose non-financial information regarding their management of social and environmental factors. The directive affords a high degree of flexibility to reporting companies and requests information ranging from corporate sustainability policies,
narrative information, and KPIs. According to this guidance, non-financial disclosure should be material.
Comply-or-explain
A disclosure guidance that requires reporting companies to either comply with required rules or codes or explain why they have chosen not to. Such provisions can be a good starting point for in promoting transparency for companies when they are still relatively immature in developing processes to disclose reliable information and the
capital markets are still developing systems to integrate the information into decision-making processes. In the new field of sustainability disclosure, they offer companies a
way to self-regulate
2019 Phillippines SEC Memorandum Circular No. 4
The guidelines help publicly listed companies assess and manage non-financial performance across ESG topics relevant to each company as well as “measure and monitor their contributions towards achieving universal targets of sustainability,” such
as the UN Sustainable Development Goals (SDGs) and other national programs.
Line-Item Disclosure
Requires information to be disclosed using a specified
methodology to produce specific line items. Traditional financial disclosure line items include information such as operating revenues, net income, and total assets. Generally makes it easier to compare information.
EU Taxonomy for Sustainable Economic Activities
Step by European Commissions’ action plan for financing sustainable growth, requires companies to disclose sustainability information in non-financial statements. By defining the economic activities that can be classified as environmental sustainable, the taxonomy enables the measurement of sustainable flows of capital.
Japan’s Mandatory Greenhouse Gas (GHG) Accounting and Reporting System
Passed in 2006, requires emissions disclosure from companies emitting certain greenhouse gases and/or companies that consume a certain amount of energy derived from carbon dioxide. The government expects that the requirements will provide shareholders and investors with comparable information when assessing the efficacy of corporate strategy in the face of climate change.
