The definition of materiality is very different in financial accounting compared to sustainability accounting. There are strong arguments for considering all of a company's well-being impacts as relevant and determining what is most material instead of using materiality as a filter for what information to collect.
Look at any sustainability report and see a "materiality matrix". The labels on the axes vary, but one dimension is materiality from the business perspective, and the other is materiality from the stakeholder perspective.
What companies then say about this matrix and even the definitions of materiality in disclosure standards and guidance varies greatly. The International Sustainability Standards Board (IISB) published the S1 Standard, which will be widely adopted, including in the Caribbean, this year: "Entities are required to disclose material information about the sustainability-related risks and opportunities that could reasonably be expected to affect the entities prospects. The materiality of information is judged in relation to whether omitting, misstating or obscuring that information could reasonably be expected to influence decisions of primary users of general-purpose financial reports." These primary users of the S1 standard are investors, creditors, or decision rights holders, and their expectations are presumed to be financial.
Until recently, the concepts were described, but the actual guidance for arriving at what is material, in real, practical terms, was missing. As a result, colleagues tell me that many consultants just make it up – you start with a long list of possible topics, you consult stakeholders about information on what matters would influence their decision-making, you review the financial relevance of these matters to the company, and you generate a combined list of matters, based on your consultations you derive a joint ranking in high, medium, low from two perspectives, you group the topics into themes, and present it all in the materiality matrix.
Well-being materiality for sustainable development
Financial accounting has long adhered to a strict and different interpretation of materiality. In financial accounts the focus is on the risk that missing or irrelevant information in financial statements could mislead primary users. As sustainability accounting and reporting is maturing and the urgency and risk of business to contribute to a sustainable future and to avoid profiting from creating harm, a new perspective emerges. The "well-being materiality" approach. This approach, as introduced by experts Jeremy Nicholls and Ben Carpenter, could revolutionise how businesses and their stakeholders assess a company's impact on sustainability.
Traditional view of materiality in financial accounting
In financial accounting, materiality is a safeguard against the omission or misrepresentation of significant information, not a filter. As Nicholls and Carpenter point out, this concept is traditionally applied with comprehensive focus, where even the most minor economi
