ESG Materiality Factors in the Fourth Industrial Revolution - Measuring Stakeholder Externalities via Dynamic Materiality

40 Pages Posted: 5 Mar 2021

See all articles by Greg Bala

Greg Bala

Truvalue Labs; FactSet

Shirley Birman

FactSet

James Cardamone

FactSet

Thomas Kuh

Truvalue Labs

Adam Salvatori

Truvalue Labs

Nicole Stelea

affiliation not provided to SSRN

Date Written: November 1, 2020

Abstract

Materiality is the notion in accounting that applies to information that is important for an investment decision and is central to the definition of fiduciary duty. Recently ESG (Environmental, Social and Governance) investors have coalesced around the concept of dynamic materiality, Dynamic Materiality™ is the concept that companies, industries, and sectors have unique materiality signatures that evolve over time, determined by factors such as shifts in business models, changing consumer preferences, emerging technologies and new regulations. Dynamic Materiality is driven by how stakeholders respond to events, behavior and externalities experienced in relation to a company or an industry. This stands in contrast to the view that materiality is relatively static and can be defined by a company. We expand on Dynamic Materiality to provide empirical evidence that materiality has distinct dimensions in addition to industry and sector: region, country, economic development, and company size. These dimensions underpin the Truvalue ESG Materiality Factors, the first holistic materiality approach. We examine how the Materiality Signatures evolves across these dimensions. Furthermore, we present evidence that conventional ESG research frameworks operating on a single global materiality model are no longer suitable in the age of the Fourth Industrial Revolution.

Keywords: Dynamic Materiality, Materiality, Multi-Dimensional Materiality, Materiality Signature, Esg Materiality Factors, Country Materiality, Regional Materiality, Industry Materiality, Company Size Materiality, Impact Signature

Suggested Citation

Bala, Greg and Birman, Shirley and Cardamone, James and Kuh, Thomas and Salvatori, Adam and Stelea, Nicole, ESG Materiality Factors in the Fourth Industrial Revolution - Measuring Stakeholder Externalities via Dynamic Materiality (November 1, 2020). Available at SSRN: https://ssrn.com/abstract=3751058 or http://dx.doi.org/10.2139/ssrn.3751058

Greg Bala (Contact Author)

Truvalue Labs ( email )

1700 Montgomery Street
San Francisco, CA 94111
United States

HOME PAGE: http://www.TruValueLabs.com

FactSet ( email )

601 Merritt 7, 3rd Floor
Norwalk, CT 06851
United States

Shirley Birman

FactSet ( email )

601 Merritt 7, 3rd Floor
Norwalk, CT 06851
United States

James Cardamone

FactSet ( email )

601 Merritt 7, 3rd Floor
Norwalk, CT 06851
United States

Thomas Kuh

Truvalue Labs ( email )

660 Mission Street, 4th flr
San Francisco, CA 94105
United States

Adam Salvatori

Truvalue Labs ( email )

660 Mission Street, 4th flr
San Francisco, CA 94105
United States

Nicole Stelea

affiliation not provided to SSRN

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