A Double-Edged Sword: Materiality Classifications of Sustainability Topics

55 Pages Posted: 18 Jan 2023 Last revised: 18 Mar 2025

See all articles by Max Goettsche

Max Goettsche

Catholic University of Eichstaett-Ingolstadt

Paul A. Griffin

University of California, Davis - Graduate School of Management

Florian Habermann

Catholic University of Eichstaett-Ingolstadt - Ingolstadt School of Management; University of Lausanne - Faculty of Business and Economics (HEC Lausanne)

Frank Schiemann

University of Bamberg

Theresa Spandel

University of Hamburg - Faculty of Business, Economics, and Social Sciences

Date Written: August 05, 2024

Abstract

The Sustainability Accounting Standards Board (SASB) has classified sustainability topics as material or not material for investors. We leverage the staggered release of the SASB classifications from 2013 to 2016 to examine whether and how they prompt changes in U.S. firms’ sustainability performance. We measure sustainability performance using RepRisk scores, which reflect environmental, social, and governance (ESG) incidents. We find that RepRisk scores on sustainability topics classified as material decrease following the release of SASB classifications. Conversely, incident scores on non-material sustainability topics increase. Our results remain robust across alternative measures of sustainability performance. This suggests that firms improve their sustainability performance on topics the SASB deems relevant for investors while simultaneously performing worse on non-relevant topics. Firms adjust their internal sustainability policies to mirror these changes. The changes in sustainability performance occur primarily through two channels. We document that higher exposure to the classifications from shareholder pressure amplifies the trade-off between material and non-material sustainability performance. We also document that sustainability-linked executive compensation prompts managers to prioritize sustainability topics classified as relevant for investors over non-relevant ones. Our study shows that, at the time of release, materiality classifications of sustainability topics guide managers to improve performance on material topics while inadvertently neglecting non-material ones. Stakeholders affected by these neglected topics bear the negative consequences.

Keywords: Corporate sustainability, materiality classifications, real effects, sustainability incidents JEL Classification. G18

Suggested Citation

Goettsche, Max and Griffin, Paul A. and Habermann, Florian and Schiemann, Frank and Spandel, Theresa, A Double-Edged Sword: Materiality Classifications of Sustainability Topics (August 05, 2024). Available at SSRN: https://ssrn.com/abstract=4324667 or http://dx.doi.org/10.2139/ssrn.4324667

Max Goettsche

Catholic University of Eichstaett-Ingolstadt ( email )

Auf der Schanz 49
Ingolstadt, D-85049
Germany

Paul A. Griffin

University of California, Davis - Graduate School of Management ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

Florian Habermann (Contact Author)

Catholic University of Eichstaett-Ingolstadt - Ingolstadt School of Management ( email )

Auf der Schanz 49
Ingolstadt, 85049
Germany

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Quartier UNIL-Chamberonne
Lausanne, 1015
Switzerland

Frank Schiemann

University of Bamberg ( email )

Feldkirchenstr. 21
Bamberg, 96052
Germany

HOME PAGE: http://https://www.uni-bamberg.de/bwl-controlling/

Theresa Spandel

University of Hamburg - Faculty of Business, Economics, and Social Sciences ( email )

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