Third parties trying to set disclosure standards for public company financial reports are ruffling some feathers at the Securities and Exchange Commission.

SEC Commissioner Daniel Gallagher recently singled out the Sustainability Accounting Standards Board as a group not authorized by the SEC to tell companies what they should disclose in their financial statements, even though SASB issues standards that it says tell companies what they should disclose related to various sustainability topics. Aside from the Financial Accounting Standards Board, which writes financial accounting rules, the SEC has not given any other body the responsibility or authority to establish disclosure requirements, he said.

Gallagher was speaking at a law conference when he used SASB as an example of an outside entity trying to influence corporate disclosures, especially as the SEC undertakes an effort to re-examine corporate disclosure requirements. “We must take exception to efforts by third parties that attempt to prescribe what should be in corporate filings,” he said. “It is the commission's responsibility to set the parameters of required disclosure.”

SASB is an independent, nonprofit group that writes industry-specific standards for disclosing material sustainability issues that the SEC requires companies to address in their mandatory filings. In a letter to Gallagher, SASB pleads it is only trying to help. SASB "is a market-driven response to the problem of disclosure overload and immaterial information," says Jean Rogers, founder and CEO of the board. "SASB develops standards that assist companies in fulfilling their disclosure obligations. The standards help companies to identify those factors that are material to the company's short- and long-term sustainability and to provide a model for reporting on those factors in a decision-useful way for investors in the MD&A section of the Form 10-K."

Rogers has said the board isn't seeking to supplant SEC requirements, but to give companies some guidance around how to determine materiality of sustainability issues and fulfill the disclosure requirements that exist. She has said SASB seeks to provide an infrastructure for how to comply with disclosure requirements related to sustainability areas, much the way FASB provides the infrastructure for how to comply with financial accounting requirements.

Gallagher, one of five commissioners, is having none of it. “The SASB argues that its disclosure standards elicit material information that management should assess for inclusion in companies' periodic filings with the commission,” he said. Except for FASB, however, the SEC has given no outside group such authority, he said. “So while companies are free to make whatever disclosures they choose on their own time, so to speak, it is important to remember that groups like SASB have no role in the establishment of mandated disclosure requirements.”

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