PwC on Sustainability

Our monthly newsletter on sustainability trends and insights impacting your business

Subscribe to the PwC on Sustainability eNewsletter for monthly updates on issues impacting your business.

May 2015

Materiality Matters

A growing number of companies recognize that sustainability issues are strategically important to the business and publically release environmental, social, and governance (ESG) data. And the number of investors who are integrating sustainability into their investment decisions is also on the rise. But does your company understand which data are financially material, which are not, and how stakeholders like investors are using that information to draw conclusions?

According to PwC research 87% of investors expect to consider climate change and/or resource scarcity in future investment decisions in the next 3 years, while 84% said they expect to consider social responsibility and/or good citizenship over that same time period. However, 61% are dissatisfied with corporate disclosure around these issues in the U.S.

If more companies are disclosing information, but investors are dissatisfied, what is the problem? It boils down to materiality - reporting on the issues that are most relevant to the company's operational performance and financial success. Harvard Business School recently conducted a study1 that tracks performance of firms with good performance on financially material sustainability issues. So, what are the key findings from the study?

  • Companies that can show positive performance on material sustainability topics significantly outperform their peers with poor performance on these issues.
  • Firms with strong performance on immaterial sustainability issues did not outperform firms with poor performance on immaterial topics. Companies intend to create business value through their sustainability strategies, but they need to focus on the right topics to get that result.

Why does materiality matter and what does this mean for your company? Companies that efficiently direct resources toward material sustainability issues and achieve positive performance on those material topics are more likely to gain an advantage. According to the study, companies with high scores on material issues and low performance scores on immaterial topics had the best future stock performance. Companies appear to create the most business value when their sustainability strategies are tightly focused where they have business value at stake.

Contact PwC Sustainable Business Solutions to have a deeper discussion about these issues.


 

Read more issues of PwC on Sustainability