By Cydney Posner
As reported in these articles from Bloomberg, the Sustainability Accounting Standards Board (SASB) July 31 released a set of voluntary sector-specific standards for disclosure in periodic reports on environmental, social and governance issues -- such as energy, climate change, drug safety and corruption and bribery -- for the health care sector. Sustainability accounting standards for the financial sector are expected to be released next, to be followed by technology and communication and seven other sectors. The standards will be tested "in a pilot program to see whether the costs of reporting such information matches the benefits," according to the WSJ. The standards are expected to be updated regularly.
While current SEC rules would require disclosure of material issues affecting companies, which could include material sustainability issues, at the present time, there is no sustainability reporting "infrastructure." According to the founder and executive director of SASB, quoted in Bloomberg, "'What's needed is an infrastructure in order for companies to understand what issues are likely to be material and a standardized form of disclosure that makes the information useful to investors….'" In the WSJ article, she argued that "'[i]nvestors really need to be able to benchmark peer-to-peer performance and that's what's been missing from this whole sustainability conversation' ….The aim is to get companies to disclose specific metrics on issues including employee turnover, ethical marketing, energy usage, supply chain quality management, and pricing fairness. For example, one metric would encourage companies to disclose the ratio of their net price increases to the U.S. Consumer Price Index." A SASB issues table organized by industry within the health care sector can be found here: http://www.sasb.org/wp-content/uploads/2013/07/Health-Care-Table.pdf. (For comparative purposes, here is a draft issues table for the technology & communication sector: http://www.sasb.org/wp-content/uploads/2013/08/SASB-Tech-and-Comms-Draft-Issues-Table.pdf.)
The health care standards are designed to provide comparative information within the industry, as well as information about risk and risk mitigation that could be important to investors. For example, one company cited by the WSJ disclosed in its periodic report that there were risks associated with counterfeit medicines and, to address that risk, it had added serial numbers to certain products, resulting in a substantial reduction of reports of counterfeit medicine.
The health care standards apply to six health care industries: biotechnology, pharmaceuticals, medical supplies and equipment, health care delivery, health care distributors and managed care. According to the Bloomberg article, the "health care sector generates about 8 percent of U.S. greenhouse gas emissions, [and] also operates 24-7, with high water and energy use and solid, biohazardous, and hazardous waste production. But only about 20 percent of companies in the health care sector disclose industry-specific sustainability information, according to SASB research. About 35 percent of health care companies do not disclose material sustainability issues, while another third do not go beyond ‘boilerplate' statements." SASB has provided a hypothetical example of a biotech's 10-K MD&A disclosure that complies with the new standards here: http://www.sasb.org/wp-content/uploads/2013/07/SASB_Biotech_Example_10K_Disclosure.pdf
The SASB executive director "said the issues identified in the standards are likely to apply to ‘most, if not all companies' within the health care sector because they were prioritized by research, a public comment period, and industry working groups. Members of the industry working groups included Pfizer, Calvert Investments, and others that represent publicly traded companies with more than $800 billion in market capitalization and investment firms with more than $952 billion in assets under management….. SASB's efforts complement similar international initiatives, such as the International Integrated Reporting Committee, the Global Reporting Initiative, and the Carbon Disclosure Project, also known as CDP." A copy of the SASB report issued earlier this year can be found at http://www.sasb.org/wp-content/uploads/2013/07/SASB-Outcome-Review-Report-Healthcare.pdf.