The site is about the difference between the important and the trivial, framed in the context of sustainability.
Leading corporations world-wide are experimenting with more inclusive understandings of materiality and assurance. Materialitytracker will keep track of their conclusions, providing an overview of what corporations have judged to be the most material issues of the year.
This site is also about bridging the gap between the financial accounting and the sustainability accounting communities. Professionals from these communities may often use the same term – such as “materiality” – but mean very different things. As knowledge platform this site provides an overview and comparative analysis of the definitions and related requirements of internationally recognized standards. This includes recommended materiality determination processes and different materiality thresholds employed. Expert user views and resources for managers, professionals and researchers will provide further support.
Materiality is often equated with risk management and strategy. Good practice examples from this platform will illustrate how to avoid a litigation avoidance or compliance driven approach to materiality, one that results in the very anti-thesis of strategy. Discussion of business challenges in a globalizing world today often refer to growing “complexity” in business structure and the issues involved. Also common terms are “interdependence” and “interconnectedness” of the issues involved. As a result, reporting by global corporations in particular has become increasingly “complex”.
Some complain about layers of requirements and varying expectations from regulators, financial accounting standards and social accounting standards. Too many standards and rules devolve from more principles-based, bigger picture approaches. More actors involved ask themselves what forms of disclosure can best convey the “real story” in a concise, focused and relevant way.
Less is more. This is the motto for some. Too much information and clutter obscures what is really important, signaling an inability to prioritize. Yet for others the lack of information disclosure on certain issues raises the suspicion of lack of transparency, hiding problem areas and weak understanding of the sustainability context. Those fighting for the right of access to information underline the importance of privately held environmental and socio-economic risk information to be disclosed, supporting informational regulation or “regulation by revelation”.
Against this background, managers are challenged to define the right mix of information to satisfy the needs of various interest groups. In assessing materiality, financial and social auditors are also challenged to exercise appropriate “judgement” – the contrary of ticking boxes. Though a variety of standard definitions exist, there is limited standard guidance on the application of materiality – in particular materiality thresholds to apply. It has often been concluded that the wide range of possible cases, high variability of the nature of the events, transactions or items considered and the inevitability of subjective judgment does not lend itself to detailed standardization.
Complicating matters further is the different time frames that different interest groups work with. Is the materiality decision focused on discrete events (such as earnings announcements) or on continuous events? The emphasis on timeliness of disclosure and short-term market reactions need to be balanced with longer term, more strategic developments, including ESG-related trends that may often be more continuous. If not, decision makers get stuck in the immediacy of short-term events and lose sight of the longer-term direction of the ship.
Materialitytracker looks forward to being a Global Positioning System in supporting decision makers along this journey.