In ESG programs, there are many different items to be considered. In this episode, Tom Fox takes a look at one of them – materiality.
The Materiality Debate
The traditional view of financial materiality is that it directly impacts a company’s economic valuation. Recently, SEC commissioners have discussed it in a broader concept, encompassing data that investors deem important. Materiality, today, is whether there is a substantial likelihood that the disclosure of an admitted fact would be viewed as having significantly altered a total mix of available information. “The impact of any particular piece of information thus remains a key element of materiality,” Tom says.
Information that Investors Tend to Call For
The scope of information has expanded far beyond financial data, now including categories such as human capital, DEI, social justice, corporate governance, and climate change. Though some disagree with this development, much of the investing community does want to see a broader amount of information in materiality, going forward. It is Tom’s view that, “The time when investors could be satisfied with generalized statements certainly seems to be behind us.”
Questions Companies Should Ask Themselves about Their ESG Program
Tom checks out a post by Lawrence Heim and discusses some of the questions that are detailed, including:
- Is ESG determining your company’s competitiveness?
- Does driving your ESG agenda mean sacrificing your company’s return earnings?
- How are you navigating ESG tradeoffs?
- How does ESG change due diligence?
- Should you become a public benefit corporation?
- Should corporations address societal concerns, such as racial equity? Tom cites what happened to Activision Blizzard as an example when answering this question.
- How do you develop a global approach to ESG?
- How do you build an ESG framework that’s future-proof for tomorrow’s economic reality?
- How do you vet a company’s performance of ESG?
- How does your corporation navigate the ever-changing landscape of ESG?
“As you devise metrics to track ESG, you have to be aware of current or other changes. But once again, this is what compliance officers do day in and day out,” Tom remarks. This is yet another reason Tom advocates that compliance should lead the ESG effort going forward.
RESOURCES
Tom Fox’s email
Ten Really Tough Questions Companies Should Ask Themselves About ESG
The Materiality Debate and ESG Disclosure: Investors May Have the Last Word
