Materiality (ESG)

* Key terms related to ESG
* Enacted ESG legislation
* Areas of inquiry and disagreement
* Opposition to ESG
* Federal ESG rules and regulations
* Public pension information by state
* Ballotpedia's ESG legislation tracker
* Economy and Society: Ballotpedia's weekly ESG newsletter
* Subscribe here

Environmental, social, and corporate governance

* * *

• What is ESG?
• Enacted ESG legislation
• Arguments for and against ESG
• Opposition to ESG
• Federal ESG rules
• ESG legislation tracker
• Economy and Society: Ballotpedia's weekly ESG newsletter

See also: Environmental, social, and corporate governance (ESG)

Materiality, in the context of environmental, social, and corporate governance (ESG), refers to the effectiveness and financial significance of a specific measure as part of a company's overall ESG analysis.[1] Material factors are financial elements deemed fundamental to the long-term success of a company's ESG strategy.[2]

## Contents

* 1 Background
* 1.1 Examples of material factors
* 2 Noteworthy events
* 2.1 SEC issues Staff Legal Bulletin 14M, emphasizing company-specific materiality
* 2.2 Fifth Circuit vacates Nasdaq board diversity rule
* 2.3 SEC adopts climate disclosure rule
* 2.4 SEC broadening definition of materiality
* 3 See also
* 4 External links
* 5 Footnotes

## Background[edit]

Materiality measures the relative financial importance of a factor among a company's ESG considerations. The Sustainability Accounting Standards Board (SASB) defined material issues as those "that are reasonably likely to impact the financial condition or operating performance of a company and therefore are most important to investors" as of February 2021.[3]

Material factors differ across business sectors and industries.[1] Materiality is a dynamic concept—an immaterial factor can become material as the result of a changing business model or landscape.[2]

### Examples of material factors[edit]

Material factors that contribute to sustainability may include "environmental issues like climate change and natural resource scarcity ... social issues like labor practices, product safety, and data security [and] governance matters that include board diversity, executive pay, and tax transparency," according to the global professional services firm PricewaterhouseCoopers.[4]

The following table provides examples of potential material factors within a company's ESG framework:[2][4]

Sample ESG material factors

Environmental issues  | Social issues  | Governance issues
Carbon emissions | Labor management | Board diversity
Product carbon footprint | Health and safety | Executive pay
Financing environmental impact | Human capital development | Ownership
Climate change vulnerability | Supply chain labor standards | Accounting
Water stress | Product safety and quality | Business ethics
Biodiversity and land use | Chemical safety | Anti-competitive practices
Raw material sourcing | Financial product safety | Corruption and instability
Toxic emissions and waste | Privacy and data security | Financial system instability
Packaging material and waste | Responsible investment | Tax transparency
Electronic waste | Health and demographic risk |
Opportunities in clean technology | Controversial sourcing |
Opportunities in green building | Access to communication |
Oportunities in renewable energy | Access to finance |
| Access to healthcare |
| Opportunities in nutrition and health |

## Noteworthy events[edit]

### SEC issues Staff Legal Bulletin 14M, emphasizing company-specific materiality[edit]

Staff Legal Bulletin 14M, issued in February 2025, reversed earlier guidance that allowed ESG shareholder proposals to advance based on social significance. The bulletin restored the requirement that proposals demonstrate company-specific economic relevance, re-centering the proxy process on traditional financial materiality.[5]

### Fifth Circuit vacates Nasdaq board diversity rule[edit]

In December 2024, the Fifth Circuit vacated a Nasdaq rule (which the SEC had approved) requiring companies listed on the exchange to either have at least two diverse directors according to Nasdaq's definition or publicly explain why they do not. The court held that the SEC failed to demonstrate that board diversity is financially material to investors, rejecting the idea that ESG attributes are inherently material. The decision argued disclosure requirements should be tied to financial relevance rather than social significance. [6]

### SEC adopts climate disclosure rule[edit]

The SEC finalized the The Enhancement and Standardization of Climate-Related Disclosures for Investors rules in March 2024, requiring public companies to report certain climate-related risks and financial impacts only where those risks were material to investors. The rule explicitly reaffirmed Basic v. Levinson's (1988) financial materiality standard and rejected broader materiality concepts or Scope 3 emissions disclosure requirements.

### SEC broadening definition of materiality[edit]

In a March 15, 2021, speech given to the Center for American Progress, Acting SEC Chair Allison Herren Lee said that she was grateful for the opportunity “to reflect on the enhanced focus the SEC has brought to climate and ESG” and “on the significant work that remains.” Lee indicated that the Commission will utilize a much broader definition of materiality (which measures the relative financial importance of a factor among a company’s ESG considerations) over the course of its next term. Lee did not indicate whether this change in definition will be formalized or will be accomplished through informal attention to ESG-inspired disclosure rules. Lee stated the following:[7]

“  | “The most fundamental role that the SEC must play with respect to climate and ESG is the provision of information – helping to ensure material information gets into the markets in a timely manner. Investors are demanding more and better information on climate and ESG, and that demand is not being met by the current voluntary framework. Not all companies do or will disclose without a mandatory framework, raising the cost, or resulting in the misallocation, of capital. Investors also aren’t getting the benefits of comparability that would come with standardization. And there are real questions about reliability and level of assurance for the disclosures that do exist. Meanwhile issuers are assailed from all sides by competing and potentially conflicting demands for information. That’s why we have begun to take critical steps toward a comprehensive ESG disclosure framework aimed at producing the consistent, comparable, and reliable data that investors need…. …two weeks ago, we announced the formation of the first-ever Climate and ESG Task Force within the Division of Enforcement. The Task force will work to proactively detect climate and ESG-related misconduct, including identifying any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules and analyzing disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.”[8] | ”

|
|

Senator Pat Toomey (R, PA), the Ranking Member on the Senate Banking Committee, responded to the pre-release of Lee’s comments, tweeting, “This would be a total abuse of power and a politicization of SEC’s disclosure standard. What matters is whether an issue is financially material to a reasonable investor, not if it conforms to the woke Left’s opinion about what’s best for humanity’s general welfare.”

## See also[edit]

* Environmental, social, and corporate governance
* Sustainability

## External links[edit]

* Search Google News for this topic

## Footnotes[edit]

1. ↑ 1.0 1.1 Impactivate, "ESG Materiality Reflects What Matters Most," May 9, 2019
2. ↑ 2.0 2.1 2.2 Capital Group, "Materiality is the foundation of our ESG approach," accessed February 4, 2021
3. ↑ Sustainability Accounting Standards Board, "Materiality Map," accessed February 4, 2021
4. ↑ 4.0 4.1 PricewaterhouseCoopers, "ESG oversight: The corporate director's guide," accessed February 4, 2021
5. ↑ U.S. Securities and Exchange Commission, "Shareholder Proposals: Staff Legal Bulletin No. 14M (CF)," accessed February 20, 2025
6. ↑ [https://www.ca5.uscourts.gov/opinions/pub/21/21-60626-CV0.pdf U.S. Court of Appeals for the Fifth Circuit, "Alliance for Fair Board Recruitment v. SEC (en banc decision)," accessed November 11, 2025]
7. ↑ SEC, "A Climate for Change: Meeting Investor Demand for Climate and ESG Information at the SEC," March 15, 2021
8. ↑ Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.

v • e

Environmental, social, and corporate governance (ESG)

Index|

Index of articles about environmental, social, and corporate governance (ESG)

Overviews|

ESG arguments‎ • Opposition to ESG • Reform proposals related to ESG • Federal ESG rules and regulations

Legislation|

State legislative approaches opposing ESG investing • State legislative approaches supporting ESG investing • Enacted state ESG legislation by trifecta status, 2020-2024

Terms|

Environmental, social, and corporate governance • Socially responsible investing • Shareholder model of the corporation • Stakeholder model of the corporation (stakeholder capitalism) • Applied business ethics  • Sustainability (ESG) • Materiality (ESG)

Influencers|

R. Edward Freeman • BlackRock • Sustainability Accounting Standards Board (SASB) • As You Sow • Free Enterprise Project • Institutional Shareholder Services The Great Reset (World Economic Forum) • Stephen Soukup • Vivek Ramaswamy • Net Zero Asset Managers Initiative

Public pensions|

State public pension plans

Newsletter|

Economy and Society (weekly)

Ballotpedia

About

Overview • What people are saying • Support Ballotpedia • Contact • Contribute • Job opportunities

* * *

Executive: Leslie Graves, Founder and CEO • Gwen Beattie, Chief Operating Officer

Communications: Alison Graves, Director of Communications • Carley Allensworth • Abigail Campbell • Sarah Groat • Nathaniel Harwood • Dillon Redmond
External Relations:  Geoff Pallay, Director of External Relations • Ken Carbullido, Vice President of Election Product and Technology Strategy • Ashley Fleming • Thomas Mardik • Hannah Nelson
Operations: Meghann Olshefski, Director of Operations • Amanda Herbert • Mandy Morris • Caroline Presnell • Kelly Rindfleisch
Tech: Matt Latourelle, Director of Technology Operations • Ryan Burch • Kirsten Corrao • Beth Dellea • Travis Eden • Tate Kamish • Margaret Kearney • Eric Lotto • Joseph Sanchez • Mary Susmitha

Contributors: Scott Rasmussen

* * *

Editorial Content

Josh Altic, Director of Content • Daniel Anderson, Associate Director of Elections & Data • Cory Eucalitto, Associate Director of Features • Ryan Byrne, Managing Editor of Ballot Measures • Mandy McConnell, Managing Editor of News • Doug Kronaizl, Managing Editor of Local Expansion • Abbey Smith, Managing Editor of Elections • Janie Valentine, Managing Editor of Law • Joel Williams, Managing Editor of Events • Joseph Greaney, Managing Editor of Policy • Andrew Bahl • Jaclyn Beran • Marielle Bricker • Joseph Brusgard • Emma Burlingame • Kelly Coyle • Jon Dunn • Victoria Edwards • Thomas Ellis • Nicole Fisher • Thomas Grobben • Brianna Hosea • Molly Kehoe • Tyler King • Glorie Martinez • Norm Leahy, Senior Editor • Nathan Maxwell • Brandon McCauley • Andrew McNair • Ellie Mikus • Mackenzie Murphy • Kaley Platek • Samantha Post • Adam Powell • Annelise Reinwald • Spencer Richardson • Victoria Rose • Briana Ryan • Myj Saintyl • Maddy Salucka • Emma Soukup • Alexis Thacker • Mina Vogel • Samuel Wonacott • Trenton Woodcox • Heather Yates