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Why is Financial Materiality important?

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SASB standards focus on financially material issues because our mission is to help businesses around the world report on the sustainability topics that matter most to their investors.

Although there is much environmental, social, governance (ESG) and sustainability information disclosed publicly, often it can be difficult to identify and assess which information is most useful for making financially-related decisions. SASB identifies financially material issues, which are the issues that are reasonably likely to impact the financial condition or operating performance of a company and therefore are most important to investors.

Ultimately, companies decide what is financially material and what information should be disclosed, taking legal requirements into account.

For more information about how SASB considers materiality in its standard-setting process, please see SASB’s standard-setting process page.

Sustainability accounting reflects the management of a corporation’s environmental and social impacts arising from production of goods and services, as well as its management of the environmental and social capitals necessary to create long-term value. It also includes the impacts that sustainability challenges have on innovation, business models, and corporate governance and vice versa. Therefore, SASB’s sustainability topics are organized under five broad sustainability dimensions:

 

  1. Environment. This dimension includes environmental impacts, either through the use of nonrenewable, natural resources as inputs to the factors of production or through harmful releases into the environment that may result in impacts to the company’s financial condition or operating performance.
  2. Social Capital. This dimension relates to the expectation that a business will contribute to society in return for a social license to operate. It addresses the management of relationships with key outside parties, such as customers, local communities, the public, and the government. It includes issues related to human rights, protection of vulnerable groups, local economic development, access to and quality of products and services, affordability, responsible business practices in marketing, and customer privacy.
  3. Human Capital. This dimension addresses the management of a company’s human resources (employees and individual contractors) as key assets to delivering long-term value. It includes issues that affect the productivity of employees, management of labor relations, and management of the health and safety of employees and the ability to create a safety culture.

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