Assessing materiality in sustainability and financial reporting

Sustainability Report

ICAS publishes research into the different assessments of materiality within the sustainability and financial reporting arenas.

Although financial stakeholders have traditionally been viewed as the main audience for a company’s annual report and accounts, the sphere of interest in corporate reporting is growing. This means that the relevance of the information within these reports now must be assessed based on an expanding list of stakeholders with diverse interests, perspectives and needs.

The International Accounting Standards Board (IASB) defines information within financial statements as ‘material’ if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that users make on the basis of the report. The widening list of stakeholders interested in corporate reporting has therefore led to varying definitions and conceptualisations of what is relevant and significant to readers, known as ‘materiality’.

The challenge of assessing materiality to answer the needs of multiple stakeholders is most evident in the increasing importance of sustainability reporting, as a result of the recent publication of various sustainability reporting standards.

Research aims and findings

Against this backdrop, ICAS has published a new report produced by Giovanna Michelon, Stuart Copper, Xi Chen, Ziyi Guo and Nicolas Garcia Torea, researchers from the University of Bristol Business School (UK), University of Padova (Italy) and University of Burgos (Spain).

This research aims to:

  • Explore to what extent and how the two traditionally distinct reporting arenas of sustainability and financial reporting are becoming connected and overlapping.
  • Shine a light on the processes followed and challenges faced by preparers when adopting the different concepts of materiality.
  • Address how companies can best identify the relevant material information to be included within both financial and sustainability reporting.
  • Question whether there is one singular conceptualisation of materiality or multiple interpretations that should be applied across different types of information.

The main findings from this project have been outlined in a key takeaways document.