Accounting for climate change: new frameworks for new risks and opportunities

Financial reporting standards are not suited to the challenges of the 21st century, and SASB provides a powerful tool for better aligning capital markets and business strategy around sustainable performance.

Climate change is happening and will impact nearly all business activity, but companies and investors lack access to an entire class of information that would help them make decisions about business strategy and resource allocation. [1] The Sustainability Accounting Standards Board (SASB) has led the charge on designing a complement to FASB aimed at providing transparent, comparable information about sustainability and its impact on business.[2] Now, SASB is pivoting from standard development to implementation and scale.


There is increasing consensus that climate change is happening and impacting human and natural systems.[3] There is also consensus that its impact on business will be enormous. In a 2010 survey, 83% of companies reported that climate change impacts pose a risk to their business and 86% reported that it poses a business opportunity.[4] Though many impacts are longer-run, the economy is already feeling impacts, and these will grow in the next 5-25 years, particularly impacting infrastructure, energy, and agriculture and varying by industry and region.[5]

Climate change is likely to impact 93% of the U.S. capital markets.[6] Companies may face threat to supply, physical damage, rising prices for inputs, regulatory threats, and many other potential impacts.[7] Due to its ubiquity, climate change presents a trend that can’t be diversified away by even savvy investors; instead they must focus on managing it.[8]


Despite consensus that fundamental performance of businesses will be impacted by climate change, reporting tools to measure performance and share information about risk have not adapted. Companies lack tools to measure and report on sustainability, and investors lack comparable information about companies to effectively allocate capital to the best long-range investments given climate change’s threats.

SASB was conceived in 2010 with this critical gap in mind[9] and launched as a 501c3 in 2011. SASB articulates its case that:

If investors are to effectively evaluate climate risk, they need a far better understanding of granular, industry-specific climate impacts, with industry-specific standards by which to evaluate corporate performance on these issues.”[10]



SASB has spent the last 5 years in R&D mode—developing its standards and positioning itself as a thought leader in a niche industry of sustainability investing. To develop standards, it has engaged stakeholder working groups, accessed data from Bloomberg technologies, and incorporated a public comment period and expert perspectives from law, investing, and accounting.[11]

It has aimed to create standards that provide clear, transparent guidance about what sustainability considerations are material to company performance and how to report them. Provisional standards have been released in batches—starting with the Health Care industry in 2013 and concluding with 79 industries released by last month.[12]


SASB faces a critical pivot point. As focus on economic impacts of climate change increases, SASB’s tools are positioned for implementation and adoption at scale. SASB has begun to move from R&D toward proof of concept and roll-out.[13]

The pivot entails two big components:

  • Focus on implementation: SASB has begun to create more company and investor tools that help bridge theory into practice. It hosts a new “standards navigator” that helps companies understand data they should report[14] and a “materiality map” that demonstrates the material impact of SASB standards on performance[15]. SASB has also introduced a partnership program (with a suite of data tools and investor products as part of this offering[16]) working with companies and investors on implementing SASB.[17]
  • Push for adoption: Since its conception, SASB has sought deeper integration into mandatory accounting and SEC reporting, and it is positioned to double down on that push. The released standards were framed to easily fit into Form 10-ks.[18] The SEC is currently reviewing its disclosure requirements for public companies and may opt to incorporate reporting around sustainability issues.[19] SASB should advocate, leveraging its market leading position and broad set of stakeholder partners, to be elevated in this consideration. SASB can also deepen its industry partnerships with influential players to position itself well for broader adoption, building for example, on its new “Investor Advisory Group” with high-profile investors like BlackRock and Calvert Investments[20] and using data from a new PWC report that shows that nearly half of investors would prefer for companies to use SASB reporting.[21]

On both of these domains, there is room to go further— developing consultative capabilities and lobbying for policy change. Over time, all investing will need to incorporate criteria historically reserved for “sustainable investing”, and SASB is poised to bridge the gap to mainstream, updating the capital markets for the challenges of the 21st century. 

(800 words)

[1] “US companies urged to put natural capital in accounts”; Financial Times; 6/24/12 (


[3] IPCC: “Climate Change 2014: Impacts, Adaptation, and Vulnerability” (

[4] UN Global Compact and UN Environment Programme. Business and climate change adaptation: Toward resilient companies and communities (source from Adapting for a Green Economy: Companies, Communities and Climate Change). 2012

[5] “Risky Business: The Economic Impacts of Climate Change in the United States”


[7] “Climate Change in 2016: Implications for Business” (

[8] “The carbon bubble: why investors can no longer ignore climate risks”; The Guardian; 10/27/2016 (


[10] IBID

[11] (







[18] “US companies urged to put natural capital in accounts”; Financial Times; 6/24/12 (



[21] “Investors, corporates, and ESG: bridging the gap”: PWC (


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Student comments on Accounting for climate change: new frameworks for new risks and opportunities

  1. While reporting these metrics will be valuable to understanding company performance, another benefit here is to start building the reporting structures that will become relevant if any market-based carbon abatement strategies get implemented. In a world with a cap-and-trade style policy, corporate sustainability practices will much more directly impact shareholder value. Understanding environmental impact will therefore be necessary for making investment decisions.

    This is also a perfect example of where past performance is not an indication of future performance, a classic financial dilemma. Accounting standards have been created in order to give investors the best picture of a company’s financial health and performance. These standards therefore have a fundamental backward-looking bias, since they likely look at companies that performed well or poorly and try to best fit various methodologies given the underlying numbers. In the past, there have not been many large scale financial impacts resulting from environmental damage, so these factors have not been taken into account in existing financial reporting standards. Given we will likely continue the trend towards stricter regulation and resource scarcity, emissions, power usage, and water usage will start to have a greater impact on performance, so we need to establish standards that will take these into account on a forward-looking basis. The SASB has its work cut out for it.

  2. I’m glad you’ve covered this topic to highlight the overarching scope and scale of governance required to even scratch the surface of the climate change issue. It’s somewhat reassuring that a majority of businesses (86%) see a strategic opportunity in tackling climate change, which is helpful when defining incentives that would drive true action. That said it seems we’ve been globally slow to institute standards that could make meaningful progress. As you’ve highlighted, the SASB took nearly five years to develop its first set guidelines, and now we’re facing into a long lead time of corporate adoption. I think infusing a sense of urgency, whether it comes from the government or from SASB itself, could be helpful in curbing the detrimental impacts of climate change sooner rather than later. I also see Michael’s point in ensuring SASB’s acknowledgement of the financial components at play. In the end, some of the largest publicly-traded companies have a first and foremost fiduciary responsibility to its shareholders, so finding a mutually beneficial way to maintain performance while boosting sustainability will be a critical key to success.

  3. I appreciated your organization of choice for this post. So many of our classmates’ posts were about ‘why’ companies should change their global warming related practices or ‘what’ they should do to improve, but few have touched on ‘how’ to incentivize this change. I’m a big believer that what gets measured gets done and hadn’t previously thought about the measurement outage in the increasingly salient conversation around climate change.

    I agree with Amrita that it is comforting that such a significant percentage of companies recognize they will be impacted a by climate change and global warming, but the cynic in me is skeptical that widespread progress will take place, absent measurement mechanisms in line with what SASB is advocating. I think you have outlined some of the important next steps, but I would push even further to say that ‘adoption’ of this standard and ubiquitous integration into mandated accounting standards should be priority #1, #2, and #3 for the company. After successfully reaching this milestone, the door becomes wide open for SASB to further commercialize their expertise, selling honed investor tools and eventually offering consulting opportunities to maximize success within newly introduced standardized sustainability metrics.

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