Pathways to Materiality: How Sustainability Issues Become Financially Material to Corporations and Their Investors

29 Pages Posted: 8 Nov 2019 Last revised: 11 Nov 2019

See all articles by Jean Rogers

Jean Rogers

Accounting Standards Board

George Serafeim

Harvard University - Harvard Business School

Date Written: November 4, 2019

Abstract

As sustainability issues, also labelled environmental, social and governance (ESG) issues, become financially material, companies, investors and regulators are designing strategies and policies to improve sustainability disclosure and performance. In this paper, we outline a framework of how sustainability issues become financially material arguing that materiality is not a “state of being” but a “process of becoming.” Our framework could assist companies and investors to make resource allocation decisions based on expectations about future materiality, social entrepreneurs and NGOs to develop their theories of social change, and policy makers to design disclosure regulations. Moreover, our framework generates predictions about the conditions under which sustainability issues become financially material that could be empirically tested in the future.

Keywords: Sustainability Disclosure, Esg, Materiality, Social Impact, Corporate Valuation, Pharmaceutical Companies, Ethics, Business Ethics, Sustainability, Environment, Finance, Accounting, Disclosure, Disclosure and Access, Regulation, Valuation, Corporate Governance, Corporate Accountability

JEL Classification: M4, G1, G3, M14

Suggested Citation

Rogers, Jean and Serafeim, George, Pathways to Materiality: How Sustainability Issues Become Financially Material to Corporations and Their Investors (November 4, 2019). Harvard Business School Accounting & Management Unit Working Paper No. 20-056. Available at SSRN: https://ssrn.com/abstract=3482546 or http://dx.doi.org/10.2139/ssrn.3482546

Jean Rogers

Accounting Standards Board

United States

George Serafeim (Contact Author)

Harvard University - Harvard Business School ( email )

381 Morgan Hall
Boston, MA 02163
United States

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