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Poole College Accounting Faculty Respond to SASB

The Sustainability Accounting Standards Board (SASB) is “an independent, private-sector standards-setting organization based in San Francisco, California dedicated to enhancing the efficiency of the capital markets by fostering high-quality disclosure of material sustainability information that meets investor needs. The SASB develops and maintains sustainability accounting standards—for 79 industries in 11 sectors—that help public corporations disclose financially material information to investors in a cost-effective and decision-useful format.”

During SASB’s most recent public comment period, the organization received 120 letters submitted by companies, investors, industry associations, academics and others across all 11 sectors reviewed by the organization. A team of Poole College accounting faculty members that includes Jon Bartley, Y.S. Al Chen, D. Scott Showalter, Gilroy Zuckerman and industry co-author Stephen K Havery, communicated the impact of the results of their research on proposed standards.

View all public responses including the full response from Poole College faculty.

Excerpts from the response from Poole College faculty:

“We are responding to your invitation to provide feedback on the exposure drafts of Proposed Changes to the Provisional Standards. The following comments apply to all metrics for sustainability aspects for which the proposed standards require or recommend the disclosure of absolute quantities that registrants also are likely to normalize for variations in activity level. As a result, these comments are substantially relevant to the Exposure Drafts in all industries across all industry sectors. To illustrate the problem with current disclosure practices that can be corrected by additions to the Provisional Standards, we will refer to the exposure drafts of the Non-Alcoholic Beverages Industry (SICS #FB0201) and the Alcoholic Beverages (SICS #FB0202) Industry in the Food & Beverages Sector.

Who we are and the background for our recommendations

The signers of this comment letter are a group of accounting faculty at North Carolina State University and a sustainability manager formerly employed by Bacardi Limited. Our comments are based on five years of research directed to improving the measurement and interpretation of average “efficiency” and “intensity” metrics for sustainability aspects (company-wide average measures). This research was conducted with financial support from the Institute of Management Accountants (IMA) and the cooperation of Bacardi Limited, a leading international alcoholic beverage company. See attachment for brief bios of each coauthor.

Our research results were published in 2015 by the IMA Research Foundation (Institute of Management Accountants) in a report titled “Flexible Budgeting Applied to Sustainability Measurements.” In addition, our findings and recommendations for practice have been published widely in environmental, accounting, and management journals including a current series of online publications by the American Institute of Certified Public Accountants. The references at the end of this comment letter provide many examples of the flexible budgeting methodology applied to a range of simple and complex reporting situations.

Overview of the issue

The primary focus of this comment letter is on an existing practice error that many, if not most, reporting companies make in their disclosures of “intensity” and “efficiency improvement” metrics for sustainability aspects. Specifically, many companies are erroneously describing and interpreting changes in normalized intensity measures (e.g., average cubic meters of water consumed per unit of output) as measures of efficiency improvement. Sustainability reports commonly compare average intensity measures in the current year to the prior year or to a base year. Companies frequently present the relevant data in charts and tables that display annual intensity measurements for sustainability aspects.

The Proposed Standards for the beverage industries require the disclosure of absolute measures of three sustainability aspects: metric tons of CO2 emissions, gigajoules of energy consumed, and cubic meters of water consumed and withdrawn. In addition, the Proposed Standards advocate disclosure of (1) normalized measures in addition to absolute measures and (2) activity metrics that support stakeholder calculation of normalized measures. For the beverage industries, FB0201-03 and FB0202-2 require the disclosure of these data where targets have been established. We will address three limitations of the Proposed Standards regarding these metrics.

First, absolute metrics and intensity metrics for sustainability aspects are not required to be accompanied by disclosures that are adequate for useful interpretation of changes in those measures over time. Second, the Proposed Standards recommend, but do not require, that companies present intensity measurements. This is a serious limitation of the usefulness of 3 disclosures because comparisons among industry peers are almost meaningless without normalization for size differences. Further, many, if not most, disclosures that companies voluntarily make of intensity metrics misinterpret the percentage changes in intensity as measures of “efficiency” improvement. Changes in the efficiency of managing resource consumption and emissions are essential measures of a company’s sustainability performance. To provide more useful measures of performance and assure the correct measurement of efficiency improvement, the Proposed Standards should require and specify the correct calculation of changes in sustainability efficiency. Improvement in efficiency for key sustainability aspects is a critical measure for evaluation of a company’s sustainability performance. To be clear, “efficiency” is a measure of the effectiveness of a company’s utilization of resources and avoidance of the generation of waste and emissions.

Improvement in efficiency is the result of a company making physical or procedural improvements in its processes, eliminating waste and more effectively using its facilities and resources to produce goods and services.

This comment letter will describe how changes in average intensity are driven by several confounding factors in addition to efficiency. As a result, it is erroneous to describe an improvement in a company’s average intensity for a sustainability aspect as an improvement in efficiency. The deficiency in interpreting changes in average intensity as a measure of efficiency improvement is that changes in intensity are the product of several confounding factors. For example, a change in energy intensity measured as average gigajoules energy consumed per unit of production could be the result of changes in the actual efficiency of a company’s operating processes, and any of the following:

  • Changes in product demand that cause shifts in production among products with differing energy intensities (product mix changes)
  • Changes in factory utilization (caused by changes in production volume) when some portion of energy consumption is fixed during the relevant time frame (note that like fixed costs, there are fixed components of many sustainability aspects)
  • Outsourcing and insourcing elements of the production process
  • Acquisitions and divestitures of product lines.

We emphasize that although intensity measurements are useful, changes in intensity are rarely accurate measures of efficiency improvement. In this comment letter, we illustrate how proven flexible-budgeting calculations can be applied to intensity metrics to derive accurate measures of efficiency improvement for sustainability aspects. In addition, we show why additional disclosures are necessary to allow meaningful interpretation of changes in a company’s absolute measures of sustainability aspects, e.g., total gigajoules of energy consumed.


We believe that material errors and distortions will continue to occur in the reporting of efficiency improvements for sustainability aspects absent an explicit requirement for the disclosure of normalized sustainability measures supported by explicit guidance for the accurate calculation of efficiency. Without additional guidance, many companies will not make the disclosures necessary for cross-sectional comparisons, and more seriously, companies will unknowingly continue to provide erroneous measures of efficiency improvement.

Changes in absolute quantities, intensity, and efficiency are important to stakeholders in evaluating sustainability performance, and although the metrics are closely related, they are distinctly different in most decision-making contexts. As a result, it is essential for the SASB to require companies to disclose all three metrics. Given the importance of efficiency and the common confusion about the correct calculation of efficiency metrics, it is necessary to provide guidance regarding its calculation in all SASB industry-based standards. In finalizing the Provisional Standards, the SASB has an opportunity to highlight this distortion and to provide guidance for its solution, thus improving the quality of sustainability information provided to stakeholders.

The references we provide contain many examples that apply flexible budgeting to measure efficiency improvement in the presence of a variety of confounding factors. In addition, practicing sustainability professionals and stakeholders can find detailed discussion and guidelines for flexible budgeting in all managerial accounting texts.

We support the efforts of the SASB to develop industry-specific sustainability metrics and disclosure guidelines. Our research team is willing to work with the SASB Board and staff to address the identified sustainability reporting issues noted above – both for the Proposed Standards and any further standard-setting efforts. Feel free to contact us for additional discussion.”