Sustainability is an increasingly important topic for the accounting profession. Recently, the editors interviewed Jeffrey Hales, the Catherine W. and Edwin A. Wahlen, Jr., Professor of Accounting at Georgia Tech and the current chair of the Sustainably Accounting Standards Board [SASB]. Jeff discusses the process by which SASB sets its industry-specific standards, how it decides to prioritize its efforts, and the current state of the adoption of its standards. He also stresses SASB’s investor perspective and the resultant focus on materiality in its reporting requirements. Jeff concludes with some thoughts about educating new professionals about sustainability and some ideas about what the future may hold. A condensed version of this interview was recently featured in an episode of our Voices of the Profession online video series (

Inside SASB

The CPA Journal: Please tell us a little bit about your journey to SASB.

Jeffrey Hales: It kind of started with the work that I’ve done as a professor of accounting. So I’ve been spending a lot of my education and time researching and thinking about the importance of financial accounting information and thinking about how GAAP can be improved to result in better-quality information. I became very interested in the importance of good GAAP and interested in the FASB’s conceptual framework and eventually ended up being a research fellow at the FASB for a year, which was a wonderful experience.

When Jean Rogers, the founder of SASB, was first organizing the SASB, what she needed was a standards council to oversee the due process of the work that the research team was going to be doing. When she called me, she explained the mission of SASB. I thought it sounded like a really interesting thing, but not knowing anything about sustainability accounting or environmental, social, or governance issues, I thought, maybe I’m not the right person, and I told her that.

She said that she was looking for somebody that could bring a lens of objectivity, who wasn’t necessarily going to believe that all environmental, social, or governance issues are important and that we should just report on them all, but really look at it through the lens that SASB has of financial materiality—someone bringing that objectivity and skepticism, which you certainly get with most academics. We’re, if anything, known for being objective and skeptical. I’m really no different there, I think.

She was also looking for somebody who had experience in working with policy makers and standard-setters, and who would be thinking about the importance of due process, transparency, and the like. So I ended up joining the Standards Council, and she asked me to chair it from the start. I have been working with the organization ever since then, late 2012, early 2013.

CPAJ: What is SASB’s process for developing standards like?

Hales: We try to model it after the best practice of other standard setters in accounting. So just like the FASB or the IASB, we have a two-tiered structure, a governance board that oversees the mission, fundraising, and seating of a standards board. And then we have an independent standards board itself, which I chair and which is responsible for reviewing the work of our research team. The research team develops standards. We give guidance and respond to that and ultimately vote on whether or not we’ll approve the work that they are doing. But all the work that they do gets exposed through a regular process of both engagement before we develop exposure drafts—we put the exposure drafts out for 90 days of public comments, and then, if need be, we put things out again for public comment a second time if there’s substantive material changes that we’d like to expose again for feedback. We just try to follow good due process.

CPAJ: Can you talk a little bit about the adoption of SASB’s standards, both in the United States and globally?

Hales: We’ve seen since the start of our operations a huge upsurge in interest from the investor community—particularly mainstream investors, large institutions—and I think it’s reflected by the members of our Investor Advisory Group, which has some of the very largest asset managers, advisory companies, and pensions—BlackRock, State Street, CalPERS [California Public Employees’ Retirement System], CalSTRS [California State Teachers’ Retirement System]—represented on there, talking about the importance of information like this.

Ultimately, that’s the demand for the information. But we can’t really produce it without partnering with companies. We’ve also seen, even though we haven’t finalized our standards yet, a significant increase in large issuers that are starting to report on our provisional standards, which have been out for about a year, even knowing that they’re about to change. Just in the last few months we’ve seen SASB reports by Nike, Kellogg, GM, Nielsen, and Peugeot. So, we are seeing global companies also start to report on our standards, as well.

I would note that the EU directive for public interest entities operating in the EU creates a new mandate where companies need to produce a nonfinancial report around ESG-type issues. SASB has been one of the standard setters that’s been acknowledged as a framework and a set of standards that could be used for complying with that rule.

CPAJ: Can you talk about how SASB decides what to focus on in terms of further development of standards that are in progress versus what industries to prior-itize, and how you lay out this plan?

We believe that almost every single industry is likely to be affected in some way by climate risk, and that those risks can actually differ quite a bit.

Hales: The biggest thing was—since we began by doing something which had not been done before, to develop industry-specific guidance around environmental, social, and governance issues that would be seen as likely to be material through the lens of financial materiality that investors use—we really had to start by covering everything. We divided up the issuer universe into 11 sectors with 77 industries and developed a set of provisional standards for every single one of those industries. Once we codify those standards later this fall, we’ll then begin a process of going back through and thinking about how to best improve the quality of the standards based on feedback that we start to hear from the issuers who are using the standards and the investors who are relying on them.

My sense is that there’ll be some industries that will need more attention sooner, and others where people might be quite happy with the standards as is for now. Over time, as business evolves and issues come to the forefront, we’ll try to keep our hand on the pulse of what’s going on so we can make sure that we are keeping the standards as relevant and cost-effective as possible.

CPAJ: Is there any sense that the board has as to which specific industries might require this extra effort?

Hales: When we think about the industries involved in the production of greenhouse gases, they’re the ones that a lot of focus is on. But we believe that almost every single industry is likely to be affected in some way by climate risk, and that those risks can actually differ quite a bit. The regulation concern around emissions, that’s actually a relatively small handful of industries. A lot of other industries may face the risk around physical impacts to their assets, depending on where they’re located, or the need to get to productive land or national resources that are out there. Over the longer term, as climate causes weather patterns to change, that could pose a risk to agricultural companies or utilities that need access to water. There are actually a lot of issues that cut across all industries.

I think the financial sector in particular is one that historically we’ve gotten a lot of interest in and a lot of feedback around the standards that we’ve been proposing. And it’s one that, frankly, is a real challenge. The financial sector is always a difficult sector to work with because of the complexity of the businesses.

CPAJ: Is there an example of a specific industry or specific company that might be a surprise for most people to realize would be impacted by sustainability reporting requirements?

Hales: I think a lot of people don’t really think about some of these issues through the lens of financial materiality, or they think maybe it’s just the emitters of greenhouse gases that would be affected by climate change. But I think you could look to the healthcare industry and the impact that, say, changing climate could have on disease migration or the likelihood of natural disasters. What’s the readiness of the healthcare system to cope with an increased likelihood of those types of events?

Depending on what you think environmental, social, governance issues are—if you think that they’re just about emitting greenhouse gases—you might be quite surprised to see the impact that climate risk could have on the operations of companies that have very little to do with the production of greenhouse gases.

Stakeholders and Social Capital

CPAJ: SASB has an explicitly investor-based focus. But some of the other standard setters—IIRC [the International Integrated Reporting Council], GRI [the Global Reporting Initiative]—have a broader stakeholder focus. Can you talk a little bit about the implications of SASB’s approach versus a stakeholder approach?

By bringing that lens of financial materiality, we’re trying to help companies identify a great starting point for communications with investors about the financial risks posed by environmental, social, and governance issues.

Hales: We did set out to have a very clear focus on financial materiality because we saw that there seemed to be a gap in the type of communications that were out there. Companies do a really great job in reporting on financial performance because of the long history of developing standards for final accounting purposes. GRI and other organizations have been very instrumental in helping companies to communicate with a broader set of stakeholders around a lot of issues that I think their broader set of stakeholders are interested in. But we felt that there was a gap in terms of there being a ready-made solution for facilitating communication between companies and investors about environmental, social, and governance issues that pose business risks to companies.

By having that focus on financial materiality, it leads to a narrower set of topics than you would typically see, so a lot of the corporate social responsibility reports that are put out could be 80, 90, 100, 110 pages—in some ways starting to approach the length of a typical 10-K—and yet we wouldn’t suggest that all of those issues that are being discussed there would be rising to the level of importance that they would be seen as material to a mainstream investor.

By bringing that lens of financial materiality, we’re trying to help companies identify a great starting point for communications with investors about the financial risks posed by environmental, social, and governance issues, and what the company is doing with their business model to think about and respond to those risks. We don’t think it’s the last point of communication with investors—or certainly with any other stakeholders—and companies have to decide what additional means they want to use to communicate with these other parties. But we think our standards are a really important starting point for that conversation.

CPAJ: Beyond financial issues, do you think investors are also concerned about social issues and how they affect the environment that corporations operate in?

Hales: There’s so much focus right now on climate. I think climate is not the only issue in the environment, and I think there’s still a lot more focus on environmental than social issues. Of all the things that we do, there’s the most skepticism, I think, around social issues. People, especially in the U.S., are a little sensitive to that work. But, in fact, I think that the “S” in “ESG” is really meant to reflect some very important human capital that is necessary in order to run a business. When you think of all the different capitals that companies rely on—the physical capitals, the financial capital, the human capital, intellectual property—companies have more and more of their balance sheets, or certainly more of their valuation, reflecting intangible assets.

Depending on the industry that you’re talking about, you could imagine the importance of making sure that you have the ability to hire the people that you need to run your business. That’s one thing that you often hear from certain industries, that access to the talent and the ability to retain good talent is one of the issues that companies do struggle with.

The labor force is a big concern to all industries. Human capital is a hugely important issue. We’ve tried, in developing our standards, to think about where human capital is likely to be more of a material risk for a company, and then think about what in that particular industry would be a useful way to capture performance around that topic. It is certainly one of the harder issues, because we have really great science around climate.

We don’t have great science around human capital. We have really good financial measurements around the value of assets or revenues, but we don’t have really great measures of the value of human capital. We’ve thought about those issues, but they’re in some ways particularly challenging.

CPAJ: Do you think that, perhaps over time, changing social attitudes might lead investors to see a broader set of issues as material, like these kinds of social issues and human capital issues? Do you think that broader public opinion could change what it is that falls within SASB’s materiality definitions?

Hales: Let’s start with our approach to financial materiality. When we think about it, we really look for two key things. One is evidence of financial impact, and what ways a particular issue would potentially influence the revenues a company produces, the expenses that it encounters, losses that might be there, the risk around that, the value of assets or potential liabilities. Second, we look for evidence of investor interest. Is this something that investors are asking about?

In order to think through those issues, there’s three parts that we look to. We look for physical potential impacts—like the threat to property, plant, and equipment that a company may have. We look for evidence of what we think of as transition risk. In the context of climate, we think about if there’s a need to have a low-carbon model for your business–are you preparing for that potential shift? And then we also look at regulatory risk. With respect to climate, one of the ways in which climate can rise to the issue of materiality for a company is if there is a risk that regulations may limit the ability to use certain fuels or other assets in a way that you had planned to use them initially.

I think the same thing is true, in a lot of ways, for thinking about these social issues. So you can imagine that if there are changes in society’s view about the importance of certain issues that could lead companies to think we can no longer operate in the way that we traditionally have, some companies may be in a better position to respond to those changes in what either employees or customers want. And depending on the issue, there is always the chance that regulation may respond also to a change in society’s views of what’s important.

Working with Other Entities

CPAJ: What’s the relationship like between SASB and GRI or IIRC?

Hales: We definitely try to partner as well as we can with the other standard setters that are out there, because, personally, I think that there are a lot of well-intended individuals trying to address the issues that they view as being important. I think that’s fantastic. In some ways, we’re looking for opportunities to make sure that we’re partnering well together so that we’re not creating unnecessary barriers to implementation of either set of frameworks or standards unnecessarily—because, in fact, I view them as being quite compatible.

If you’re a large public company in the U.S. that has significant operations in Europe, then I think you’re going to want to pay attention.

If you think about IIRC, they’re very interested in bringing these ESG issues together with traditional financial issues that companies are reporting on. You can do that by looking at what a company’s reporting with respect to GRI or with SASB, and bringing that together with discussions of financial performance. I think that’s a natural fit. In fact, IIRC doesn’t produce a lot of guidance around what to report on, but they do talk about bringing these things together.

With respect to GRI, I think they’re really valuable as a framework for, and a set of standards to look to in, facilitating communication around a broader set of issues to a broader set of stakeholders. But when it comes to having a focus on investor communications, we feel that is a subset of the wider set of stakeholders that GRI might be helping a company to communicate to.

CPAJ: What kind of impact do you think the new EU directive on nonfinancial reporting disclosures is going to have on reporting generally, and even on reporting specifically for U.S. companies?

Hales: I think it remains to be seen, in part. This is not the first time the EU has issued a directive around this. But I think this one does have a little more rigor around what they’re requiring, and I think there are better frameworks available today to aid compliance. With most directives, it really kind of comes down to, what are the countries going to do with their own country-specific rulemaking and enforcement?

This time it seems like there’s quite a bit of interest in this type of reporting. I expect that we’ll see a lot of reporting on these issues that we might not have seen without that regulatory push. This is a very common model that we see in Europe—that change happens through a regulatory push there. It’s a bit of a different model than what we see here in the U.S. or in Canada, or, frankly, even in the U.K.

If you’re a large public company in the U.S. that has multinational operations and significant operations in Europe, then I think you’re going to want to pay attention and think about how to comply with and meet those guidelines.

CPAJ: What’s the AICPA’s relationship with SASB like? And beyond that, can you talk about SASB’s relationship with other professional accounting bodies?

Hales: I view our mission as being almost impossible to carry out without key partnerships with professional organizations that make up the skeletal structure of our entire accounting profession.

I don’t teach financial accounting anymore without at some point talking about reporting on environmental, social, and governance issues.

The AICPA is a really important organization and does a lot of thinking about key issues in terms of the future of the profession. We try to have regular briefings with the AICPA, although we’re right now working on a partnered speaking opportunity to talk about SASB at an upcoming AICPA event in the fall.

We are also trying to work with other organizations like the IMA. It’s really hard to imagine how companies are going to be in a position to do what we’re asking them to do, which is produce new information that we think is important and material to investors, if there isn’t the underlying professional structure to help management accountants understand the value of this information—how it can be measured well within organizations, communicated internally, and managed internally, as well as communicated externally.

There’s a role for the auditing side of our profession as well, and so we try to work with not only the Big Four, but other CPA firms and the Center for Audit Quality. I really think it’s important to partner with all of the professional organizations, and certainly also the American Accounting Association.

Best Practices

CPAJ: Are there any particular early adopters out there now that you would direct readers to as particularly good examples?

Hales: One of the examples I would point to is JetBlue, because JetBlue is one of the very first companies to embrace the provisional standards. They first produced a SASB report two years ago, in 2016 ( I think in contrast to what they had done previously, with a larger CSR report, which was quite lengthy, their first SASB report was around 20 pages and included a pretty clear table of their performance on our metrics and where you could look in the report to get more context.

Last year, they produced a longer report, because they also added onto that a TCFD report. This is the Task Force for Climate-related Financial Disclosures [TCFD], and it has been of increasing interest, both to the investor community and the issuer community. SASB is one of the most cited ways in which you can comply with the recommendations under the TCFD guidelines.

Another great example is Nike. Nike put out a quite comprehensive social responsibility-type report ( In it, they reported on a number of our metrics, and then put together a stand-alone reference page where you can see their performance on our metrics, as well as where you can read more about it in their reports.

Educating the Next Generation

CPAJ: Can you talk a little about what SASB’s doing to take its standards and its approach and educate both current accountants and future accountants about sustainability?

Hales: We think that in addition to producing standards that we think are good standards, there’s also an educational component of our mission to help change practice around this. We—the board, our staff—are often out there speaking with different professional bodies, corporations, and other types of organizations, helping them learn what it is we’re trying to do, understand what our standards are and how to implement them.

We produce a number of documents that are meant to be examples of best practices guidelines that could help people to think through these issues. We have a credentialing arm as well, to help people to get training around being a professional who’s involved in the reporting of environmental, social, and governance issues through our standards.

Personally, as a professor, since my regular job is thinking about accounting education, I’m very interested in this. Frankly, I don’t teach financial accounting anymore without at some point talking about reporting on environmental, social, and governance issues—these material long-term risks that companies face—as part of a company’s communications to the marketplace.

We’re trying, as an organization, to partner with the AAA and think about opportunities to help develop curricula that could be used, materials that could be developed and utilized in courses. I know that a lot of schools are thinking about how to integrate this type of information into traditional curricula. There’s no easy answer. In a lot of ways, I think there’s a parallel to the challenge in trying to bring in international financial reporting standards to a program that had traditionally focused only on U.S. GAAP. The academy has struggled for decades with thinking about those types of issues, as well.

CPAJ: Can you talk about the advantages or disadvantages of integrating sustainability throughout the current curriculum versus breaking it out as kind of a separate topical area or specialty or credential?

Hales: I think the reality right now is that the easiest way to talk about these types of things is to do it in an add-on type of course, as a separate part of the curricula. And that would be easiest because, frankly, in the same way that a lot of professional accountants are not yet trained around thinking through these issues, and certainly are not yet familiar with our standards in any great detail, neither is the academic community.

A lot of faculty have been doing their job quite reasonably well for decades, and this is new and different and requires time and effort and focus to get up to speed. And so the likelihood that any one school would have a faculty that was in a position to integrate these types of things into their own curricula is very low. I don’t really see that any time in the very near future. So an add-on is probably the only way to deal with it at the moment.

We’re trying to partner with the AAA and think about opportunities to help develop materials that could be utilized in courses.

I think ideally this is just part of the way that you would think about reporting and teaching accounting. Thinking not just about what is earnings per share this particular quarter, and the production of that, but when thinking about the valuation of assets and the future potential growth in revenue, you’d also be thinking about how environmental, social, and governance issues would play into that, and why a company would not only talk about short-term projections of revenue in their MD&A [management discussion and analysis], but also why they might talk about the material risks and trends that the company is facing with respect to these issues—what are thought of more traditionally as non-financial types of risks.

CPAJ: Do you have anything else that you would like to talk about or share with our readers?

Hales: I would just say I think this is a really exciting area, and to me, it seems like an emerging area with a lot of potential for our profession. I would really encourage everybody to do what you can to learn about sustainability—how this might be of value to you in your career, and also how you can learn more and be engaged. I think it’s very exciting and really important.