Recent research by Khan, Serafeim, and Yoon shows that companies which help solve material as opposed to non-material sustainability problems achieve better results. But what is 'material'? Speaking the language of accountants, an information is relevant and material if its presence or absence leads to different shareholder investment decisions. We can transfer this conceptualization to the sustainability domain: If the presence or absence of a certain engagement for an environmental or social problem matters for stakeholder decisions, it is a material engagement.
Consider the example of a logistics service providing company. The combustion of diesel or gasoline is greenhouse gas emission intensive. Transport causes congestion, noise and bad air. Addressing these problems is engaging in material sustainability. Probably, customers would prefer buying this logistics companies' services rather than those of competitors without such engagement. This company might be less likely to become the target of boycotting etc. In contrast, engagement in waste reduction by the same company would be considered engagement in non-material sustainability issues simply because logistics companies produce less waste compared to companies from other industries. Such engagement would not significantly affect stakeholder attitudes or behaviors.
The concept of materiality is helpful for managerial decision makers. As they navigate the complex landscape of sustainability they encounter so many different problems and areas that they often find it hard to find out where to allocate scarce resources in terms of attention, people and money. Distinguishing material from non-material topics gives orientation and highlights areas that should receive attention first. The SASB Materiality Map gives ideas about what matters most for firms from different sectors.
