The Upside of Disruption: Sustainability in the Technology & Communications Sector

The Technology & Communications sector is exceptional in how quickly it is evolving and how often its material issues arise in our everyday lives. The design of smaller and smarter devices is revolutionizing communication and information sharing, enabling us to carry the world in the palm of our hands. Because of this sector, we live in a new era of access, transparency, and connectedness.

As rapid change in the Technology & Communications sector disrupts traditional business models, companies are innovating to stay relevant. Within this innovation lies the potential to impact society and the environment in profound ways. Internet companies can promote freedom of expression. Software companies can help customers address resource challenges by automating energy management or diminishing the need for in-house data centers. New business models sector-wide can close the ‘digital divide’ that previously inhibited access to technology and information for the underprivileged, disabled, and elderly.

Amidst the opportunities for innovation, this sector faces challenges from its dependence on social capital. The privacy and security of customer data is coming under close regulatory and customer scrutiny. Technical skills are in limited supply. Companies face pressures to compete on low margins, but compromised labor practices in supply chains elevate reputation risks.

Companies must address these social and environmental risks and opportunities in order to protect and enhance shareholder value. Management (or mismanagement) of material sustainability issues has the potential to affect valuation through impacts on profits, assets, liabilities, and cost of capital, as well as intangible value.

SASB’s standards for Technology & Communications industries – issued today – will help companies disclose, and investors compare performance, on these material sustainability factors.Our provisional standards are available for six industries in the sector: Electronic Manufacturing Services & Original Design Manufacturing, Hardware, Internet Media & Services, Semiconductors, Software & IT Services, and Telecommunications. Examples of material factors include sustainable energy management, data privacy & security, and intellectual property protection.

Sustainability issues in this sector came to public light with the passage of Dodd-Frank (2010) and subsequent SEC rules, which required companies to publicly disclose their use of ‘conflict minerals’ if they are “necessary to the functionality or production of a product” that the company manufactures or contracts to be manufactured. Some have accused this ruling of expanding the role of securities law to protect “social interests”.

SASB’s standards for the Electronic Manufacturing Services & Original Design Manufacturing, Hardware, and Semiconductors industries discuss conflict minerals under the issue supply chain management & materials sourcing. Evidence of materiality is linked back to supply constraints and price volatility that can stem from conflicted regions. It’s important to note that SASB’s standards for Technology & Communications industries – as for all 80+ industries for which we’re developing standards – follow the U.S. Supreme Court’s definition of material information, defined as presenting “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available”. This definition of materiality has a singular and unwavering focus on the reasonable investor’s decision to buy, sell, or hold a security. Our standards are designed for the disclosure of material sustainability information that informs investor decision-making.

As an ANSI-accredited standards setting organization, SASB uses a rigorous process that

includes evidence-based research, balanced industry working groups, 90-day public comment periods, and review by an independent Standards Council. The industry working groups for this sector included 215 survey responses from members representing companies with $1.9trn market capital and investors with $2.3trn assets under management. SASB issues standards that are cost-effective for companies and decision-useful for investors. The average number of sustainability issues addressed in eachTechnology & Communications standard is between five and six, and 78% of suggested accounting metrics are quantitative.
By the end of 2014, we will have issued 45 sets of industry standards, and by the beginning of 2016 this number will rise to more than 80. Join us in the standards development process.

Dr. Jean Rogers is the CEO of the Sustainability Accounting Standards Board.