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New report on nonfinancial materiality

  • Leaf - sustainability (SASB) Image

Aug 09, 2013

AccountAbility, the global not-for-profit organization promoting accountability, sustainable business practices, and corporate responsibility, has released a new report "Redefining Materiality II: Why It Matters, Who’s Involved and What it Means for Corporate Leaders and Boards." The report provides a framework for corporate leaders and boards to enhance the definition and management of nonfinancial materiality.

Traditionally, materiality has been defined through the lens of financial reporting. However, as investors increasingly recognize the financial implications, risks, and opportunities that arise from nonfinancial social, environmental, and governance issues, there is a need to expand the definition of materiality and also to apply it to areas such as climate change, human rights, and board accountability.

Thus, materiality is no longer restricted to purely financial indicators or single issues. Rather, it is necessary to apply it to all five capitals (manufactured, financial, social, human, and natural capital) if reports are to continue to be meaningful communications to investors. In our comment letter on the International Integrated Reporting Council (IIRC) Consultation Draft on integrated reporting, which has the multiple capitals theory at its core, we note: "We believe a better and clearer articulation is required in the Framework on how materiality for an integrated report is distinct from materiality for other reports such as financial reports, and how to handle the tension between application of materiality and achieving conciseness," and in his June 2013 "Breaking the boilerplate" speech, IASB Chairman Hans Hoogervorst maintained that it is necessary to clarify "that the materiality principle does not only mean that material items should be included, but also that it can be better to exclude non-material disclosures."

Therefore, the report made available this week describes the landscape of various global materiality initiatives and provides a framework for CEOs, senior managers, and boards that helps them to:

  • Discerne which issues are most material to the company, its stakeholders, industry, and the wider operating environment.
  • Develop appropriate mechanisms and processes that enable continual assessment of material priorities.
  • Manage materiality.
  • Disclose the corresponding performance on a timely and transparent basis.

Please click for the following information on the AccountAbility website:

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