Sustainability reporting and approaches to materiality: tensions and potential resolutions

Purpose - The concept of materiality is becoming increasingly important for sustainability performance measurement and reporting. It is widely agreed upon that materiality matters, in the sense that companies should identify, prioritize and disclose information on sustainability issues that are considered material. There is, however, a tension at the heart of this consensus, owing to parallel approaches to materiality being used in practice. This paper aims to shed light on how and why the parallel uses of the materiality concept may cause confusion and how this tension could be resolved. Design/methodology/approach - This paper takes as point of departure the tension between two approaches to materiality: based on the Global Reporting Initiative definition, which emphasizes sustainability issues that are important to stakeholders and that have significant impacts and based on the Sustainability Accounting Standards Board definition, which emphasizes sustainability issues that are financially material, i.e. likely to influence the financial performance of the company. This paper discusses the nature and consequences of the tensions between how the two definitions of materiality in sustainability reporting are used in practice, with a particular emphasis on users of information in financial markets. This paper provides empirical insight on these users’ perspectives through a survey (n= 30) and qualitative interviews (n= 6) of financial market professionals. Findings - This study reveals tensions between different approaches to materiality in practice and how this may lead users of sustainability reports to draw unjustified conclusions on the basis of materiality assessments. Specifically, this paper demonstrates the perceived shortcomings in information availability and information quality from the perspectives of different stakeholders in financial markets with different information needs. Practical implications - The users of sustainability reporting information require clarity in the communication of materiality in non-financial reports. This paper addresses how such clarity can be pursued. Social implications - Clarity about materiality in non-financial reporting is important both for investors that pursue financial return on green investments and for society at large, which relies on information about real sustainability impacts. Originality/value - This paper furthers the understanding of how different materiality concepts may be problematic and how recent and ongoing developments may mitigate the risks of conflating uses of the concept.