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Materiality is a concept that defines why and how certain issues are important for a company or a business sector. A material issue can have a major impact on the financial, economic, reputational, and legal aspects of a company, as well as on the system of internal and external stakeholders of that company.

The materiality concept


The Materiality concept applies in a wide variety of contexts: accounting, reporting, business, financial, legal, risk and, more recently, Environmental, Social, and Governance (ESG) or sustainability or non-financial issues*. The history of the concept dates back to 1867**, when the English Court introduced the term “material”, by referring to “relevant, not negligible fact” that emerged in the judgement of the false accounting case concerning the Central Railways of Venezuela. The English Common Law could indeed be considered as the cradle of the concept of materiality!

The concept of materiality has been brought into the public spotlight in the sustainability context by the Global Reporting Initiative (GRI) in their G3 Guidelines in 2006 – the cornerstone of the GRI Sustainability Reporting Framework. It has quickly become essential for stakeholder engagement exercises and topic mapping while appearing as a keyword in consultant pitches. Sustainability professionals around the world clambered to understand the term and the process, outlined by standard setters like the GRI and the International Integrated Reporting Council (IIRC).

As a concept borrowed from the accounting and auditing domain, materiality represented the perfect idea to foster the integration of non-financial issues in the mainstream business thinking and decision making. It sounds professional, financially relevant, familiar to investors and auditors.


1- The [many] materiality definitions 2- Materiality definition by the Corporate Reporting Dialogue (CRD) 3- Materiality definitions from a regulatory perspective 4- Materiality for investors

5- Two major perspectives on materiality 6- What does a robust materiality assessment look like? 7- Materiality assessment: a shift in companies' approach 8- The risk of not completing a materiality assessment

The [many] materiality definitions

As mentioned initially, materiality is the concept that defines why and how certain issues are important for a company or a business sector. A material issue can have a major impact on the financial, economic, reputational, and legal aspects of a company, as well as on the system of internal and external stakeholders of that company.

However, there are a number of materiality definitions depending on the context of use. Although not exhaustive, the below definitions provide a perspective of materiality from key stakeholders – regulators, standards setting bodies, and investors.

Materiality definition by the Corporate Reporting Dialogue (CRD)

In the context of the sustainability or non-financial reporting, one of the statements of the common principles of materiality by the Corporate Reporting Dialogue (CRD) indicates that:

“Material information is that, which is reasonably capable of making a difference to the proper evaluation of the issue at hand.”

The CRD’s definition is significant as it represents a common definition reached by the eight principal standards and guidance setters for reporting organizations, including GRI, the IIRC, the Sustainable Accounting Standards Board (SASB), the Climate Disclosure Standards Board (CDSB), the Financial Accounting Standards Board (FASB), the Carbon Disclosure Project (CDP), the International Financial Reporting Standards (IFRS), and the International Organization for Standardization (ISO). It was set up to achieve a “greater coherence, consistency and comparability between corporate reporting frameworks, standards and related requirements.”

Materiality definitions from a regulatory perspective

The U.S. SEC

From a regulatory perspective there are a number of definitions of materiality or material information. As such, according to the United States Securities and Exchange Commission (SEC):

“A matter is "material" if there is a substantial likelihood that a reasonable person would consider it important.”

The recent remarks by U.S. Securities and Exchange Commission by William Hinman – Director of the Corporation Finance Division – on ESG disclosure are in a way advancing that the current accounting principles already cover non-financial factors. The SEC stance is then that the Commission won't prescribe issue specific disclosures – companies are in charge of assessing material risks.


"The flexibility of our principles-based disclosure requirements should result in disclosure that keeps pace with emerging issues, like Brexit or sustainability matters, without the need for the Commission to continuously add to or update the underlying disclosure rules as new issues arise." "[..]if a company determines that its physical plants and facilities are exposed to extreme weather risks and it is making significant business decisions about relocation or insurance, then, when these matters are material, companies should provide disclosure."

The U.S. Supreme Court

The U.S. Supreme Court says information is material if there is: “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”*


The International Financial Reporting Standards (IFRS)

The standard setting body, such as the International Financial Reporting Standards (IFRS) Foundation defines materiality as the following: “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The IFRS Foundation develops and promotes of the respective IFRS Standards through its standard setting body – the International Accounting Standards Board (IASB). Another financial standard-setter the Financial Reporting Council (FRC) defines it in the context of auditing: Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.”

The ISO 26000

The International Organization of Standardization Guidance on Social Responsibility (ISO 26000) defines it: “An organization should review all the core subjects to identify which issues are relevant. The identification of relevant issues should be followed by an assessment of the significance of the organization’s impacts. The significance of an impact should be considered with reference both to the stakeholders concerned and to the way in which the impact affects sustainable development.”


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