SASB Materiality Map is similar to the NACE code allocation in ISO Management system (MS) standards

The subject of ESG (Environment, Society, and Governance) is developing rapidly. It is making the boom and stakeholders make efforts for sustainable development goals. Hence, ISO Management system auditors and consultants are likely to be learning them. Here, I wanted to share the similarities between these 2 standards. If this could be learned, it will be easy for companies to get assurance in ESG based on their current implementation of management system standards (ISO 9001, ISO14001, etc.) 

First of all, what is ESG and what is SASB? 

- ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. ESG metrics are not commonly part of mandatory financial reporting, though companies are increasingly making disclosures in their annual report or in a standalone sustainability report. Numerous institutions, such as the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) are working to form standards and define materiality to facilitate the incorporation of these factors into the investment process.

- SASB Standards guide the disclosure of financially material sustainability information by companies to their investors. Available for 77 industries, the Standards identify the subset of environmental, social, and governance issues most relevant to financial performance in each industry. Effective August 1, 2022, the Value Reporting Foundation–home to the SASB Standards–consolidated into the IFRS Foundation, which established the first International Sustainability Standards Board (ISSB). SASB Standards are now under the oversight of the ISSB. The ISSB will build upon the SASB Standards and embed SASB’s industry-based standards development approach into the ISSB’s standards development process. The ISSB actively encourages preparers and investors to continue to provide full support for and to use the SASB Standards until the SASB Standards become the IFRS Sustainability Disclosure Standards.

Then, what is Materiality Mapping? 

- Materiality means significance. So, when mapping the materiality, or conducting materiality assessment, organizations evaluate their impacts on each of the three dimensions of ESG and define the most significant ones. It is similar to the risk assessment, risk categorization, and risk treatment activities as mentioned in ISO management system standards. 

- So, SASB’s Materiality Map is often used by firms that want to identify sustainability issues relevant to their operations. It is important to focus on material risk because costs and efforts should bring measurable improvement. Therefore, this type of materiality assessment helps them to find the problem that is likely to affect the firm’s operating performance or financial resilience within whatever industry they operate in. 

In the end, what are the NACE Codes and their relations to ISO MS standards? 

- NACE Coder is a pan-European classification system that groups organizations according to their business activities. This search facility, provided by the Central Statistics Office, allows users to find NACE codes for the various NACE categories. NACE Codes are used to ensure auditors have appropriate experience when they audit clients. This ensures the auditors are sufficiently qualified personnel who knows the sector, processes, and issues in the sector. NACE Code Table is used by certification bodies like TQCSI and they are used for categorizing the sectors of the operation. 

- The code is allocated to each client when making the contract for audit and the certificates are provided by indicating the NACE code as well. There are other codes like E (Environmental), IS (Information Security), FS (Food safety), and S (Safety). In each category, the audit team should have someone who is specialized in this code area based on their education, professional experience, consulting, and auditing experience. 

- There are known material risks in each category of NACE. For instance, E codes 02 (Releases to water), 03 (Releases to land), 04 (Waste), and 06B (Uses of raw materials, energy, and natural resources) for the 01.1 Crop in Agricultural sector, Risk Category Medium. This way, each sector has its specific risk level and the type of environmental impact the company should take control of. 

In conclusion, each ESG standard has its specific framework and the categorization of the material risks. They are similar to each other. So, companies that have already implemented ISO14001 and other management system standards can comply with sustainability requirements and get it integrated into SASB and other standards.     

Oyuntugs B. 

References:

1. SASB, 2023 (Link: https://www.sasb.org/standards/materiality-map/)

2. CFA Institute, 2021 (Link: https://www.cfainstitute.org/en/research/esg-investing#:~:text=ESG%20stands%20for%20Environmental%2C%20Social,material%20risks%20and%20growth%20opportunities.)

3. NACE, Rev.2, 2006 (Link: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Business_economy_by_sector_-_NACE_Rev._2)

3. TQCSI, NACE Codes, 2022.