What is Materiality

materiality in the investment field the concept of material information is not new it's defined as information for which there is a substantial likelihood that a reasonable investor would consider it important in making investment decisions or information that's reasonably certain to have a substantial effect on the stock price or a company's value although companies have long assessed both the materiality of sustainability topics and the materiality of financial information until recently they've rarely drawn a connection between these two concepts or their application this consideration is well embedded in the perspective of double materiality double materiality refers to

the consideration of both sustainability issues that affect companies activities and the effect of companies activities on people and the environment in other words double materiality goes beyond the focus on companies financial valuation and looks at the impact the company has on its surroundings its people and environment the concept of materiality is in constant evolution what is financially not material to a company today can become material tomorrow a process called dynamic materiality an example of dynamic materiality is how human population growth has affected natural resources a century ago there were only 2 billion of us today

this number has reached 8 billion while the human population has quadrupled in size the planet did not which means that natural resources have become scarcer as you know from economics scarce resources have an impact on their price and affect companies cost depending on the perspective selected such as investor consumer employee civil society the material issues may have a varying scope this is referred to as embedded materiality for example from the narrow scope of issues reflected in financial statements to the broader scope of issues affecting enterprise value or to those having positive or negative impacts on

the environment and society materiality is important because it represents the concept to foster integration of non-financial issues in the mainstream business thinking and decision making a number of jurisdictions around the world are implementing mandatory disclosure of material esg information [Music]