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A review of ex ante and ex post
materiality measures, and
consequences and determinants
of material disclosures in
sustainability reporting
Asif M. Huq
University of G€
avle, G€
avle, Sweden and
Dalarna University, Falun, Sweden, and
Mahsa Mohammadrezaei
University of Ottawa, Ottawa, Canada
Abstract
Purpose –The purpose of the review is to synthesize the research on materiality measures of sustainability
reporting and highlight how preparers, users, auditors, regulators and other stakeholders assess or determine
the materiality in sustainability reporting. The review further summarizes the findings on consequences and
determinants of material disclosures in sustainability reporting. Several directions for future research are also
discussed.
Design/methodology/approach –This study provides a systematic review of materiality measures
developed in the context of sustainability reporting. This synthesis of the literature summarizes the existing
methodologies of measuring materiality. It also evaluates the strength and limitations of existing methods and
approaches of measuring materiality in sustainability disclosures.
Findings –We find that the ex post materiality measures are simplistic and unidirectional in nature and ex
ante materiality measures lack external validity and are generally narrow in focus – for example, focused on
single firms or industries. Another major limitation in the current literature is the absence of robust empirical
investigation of double materiality in sustainability reporting and a vast majority of the measures are
developed without stakeholder engagement. Lastly, we document that the findings on determinants of
material disclosure are fragmented and inconclusive and that the literature on consequences of material
disclosure is rather un-explored.
Originality/value –The study explains the connections and differences between the various materiality
measures. We document that materiality is measured in two distinct ways, ex ante and ex post and often times
without stakeholder engagement. Moreover, given that a vast majority of the measures rely on manual content
analysis, we find that they suffer from reproducibility and scalability.
Keywords Literature review, Materiality, Sustainability, Materiality determinants,
Materiality consequences
Paper type Literature review
Journal of
Accounting
Literature
© Asif M. Huq and Mahsa Mohammadrezaei. Published by Emerald Publishing Limited. This article is
published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce,
distribute, translate and create derivative works of this article (for both commercial and non-commercial
purposes), subject to full attribution to the original publication and authors. The full terms of this licence
may be seen at http://creativecommons.org/licences/by/4.0/legalcode
For helpful comments, the authors want to thank the editor and the anonymous reviewer(s) of the
Journal of Accounting Literature; Jos�
e Carlos Marques, Tefler School of Management, University of
Ottawa, Canada; Reza Mortazavi, Jonas Nordstr€
om and Klas Sundberg from the School of Culture and
Society, Dalarna University, Sweden and the other participants of the December 13, 2023 Business and
Society seminar series at Dalarna University, Sweden; and Fredrik Hartwig, Department of Business
and Economics, University of G€
avle, Sweden.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/0737-4607.htm
Received 29 April 2024
Revised 23 September 2024
Accepted 2 October 2024
Journal of Accounting Literature
Emerald Publishing Limited
0737-4607
DOI 10.1108/JAL-04-2024-0084
Introduction
Materiality in sustainability reporting has experienced a surge of interest from academics,
standard setters and practitioners. The most recent debate centers around the choice between
a single or double materiality approach to sustainability disclosure. North American
standard setters, for example, the International Sustainability Standards Board (ISSB), lean
toward the single materiality (i.e. financial materiality) which is anchored in its decision-
usefulness for prospective investors, emphasizing the financial ramifications of disclosed
data. Furthermore, in the single materiality approach, an issue is considered material if it is
likely to affect the financial performance of the firm thus employing an outside-in
perspective. In contrast, European Union (EU) regulators advocate for double materiality (i.e.
financial materiality and impact materiality (European Commission, 2023) which obliges
firms to evaluate both their financial and broader societal impacts during corporate
sustainability decision-making processes (Abhayawansa, 2022;Jørgensen et al., 2022). Thus,
double materiality also takes an inside-out perspective where an issue is considered material
not only based on its impact on the firm but also taking into account the firm’s impact on the
outside world.
The ethos of materiality has its roots in the early phases of financial accounting
marketization (Frishkoff, 1970). As a result, financial accounting and auditing standard
bodies, such as the Financial Accounting Standards Board (FASB), the International
Accounting Standards Board (IASB), and the International Auditing and Assurance
Standards Board (IAASB), have traditionally defined materiality within the scope of
financial materiality, emphasizing single materiality. The influence of the single materiality
perspective is also noticeable in the materiality definitions of some of the well-known
sustainability accounting standard bodies like International Integrated Reporting Council
(IIRC) and Sustainability Accounting Standards Board (SASB) with Global Reporting
Initiative (GRI) being the exception and more inclined toward double materiality [1]. The
double materiality, although conceptually intriguing, is relatively nascent in regulatory
practice. A testament to its evolving significance is the EU’s recent legislative measure, the
Corporate Sustainability Reporting Directive (CSRD, EU 2022/2464), introduced in
November 2022 and the subsequent delegated regulation (EU 2023/2772) of sustainability
reporting through the European Sustainability Reporting Standards (ESRS) in July 2023
(European Commission, 2023)[2].
In essence, materiality refers to the degree of relevance of an (un)disclosed financial and
non-financial information (e.g. sustainability) for users (e.g. shareholders and other
stakeholders) in their decision-making processes. At firm-level, it is the preparers (i.e.
management) who decide what information to disclose and what to omit, while auditors,
during their audit process determine if management has omitted any material information in
their annual reports. Historically, auditors were only required to audit financial information.
However, with the implementation of the CSRD, they will be required to audit sustainability-
related information as well. The materiality concept in accounting thus predominantly
revolves around three groups: preparers, auditors and users. Each group often has its own
interpretation and application, complicating the matter further (Hicks, 1964;Messier et al.,
2005). For instance, in sustainability reporting the decisions of preparers on what is
materially significant can be influenced by strategic objectives, sometimes obscuring the
true essence of the report (Cho et al., 2012). Firms may also define materiality differently
based on whether they follow an intrinsic, instrumental or integrated corporate
sustainability strategy, affecting how material issues are identified and prioritized
(Adolph and Beckmann, 2024). In fact, the transparency of sustainability reporting has
been questioned, with critiques highlighting issues like irrelevant data disclosures and over-
generalized content (Boiral and Henri, 2015;Dubbink et al., 2008). Moreover, recent studies
document that there are inconsistencies between firms’ declarations and their actual
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adherence to double materiality principles, highlighting a gap between policy and practice
(Correa-Mej�
ıa et al., 2024). This has led to the introduction of new measurement techniques
and sustainability reporting standards in an attempt to elevate the quality of sustainability
disclosures (Jørgensen et al., 2022). Despite extensive research on sustainability, a specific
focus on the materiality (irrespective of single or double materiality) of sustainability
information remains rather under-explored (Fiandrino and Tonelli, 2021;Michelon et al.,
2022). Moreover, several studies and surveys, such as those by Ferrero-Ferrero et al. (2020)
and Kitsikopoulos et al. (2018), have pinpointed significant gaps in current sustainability
reporting practices. These gaps are rooted in three key challenges, elaborated on in the
following paragraph.
First, there is a growing body of research that emphasizes the subjective and general
nature of sustainability reporting and the potential for opportunistic use of sustainability
reports for greenwashing (Kim and Lyon, 2014;Laufer, 2003). Second, parallel to this,
other critical works that examine sustainability reports demonstrated how irrelevant and
lacking (too general) the information is for stakeholders, highlighting the absence of
specific, quantifiable metrics and heterogeneous indicators (Dubbink et al., 2008;Kim and
Lyon, 2014;Yilmaz et al., 2008). It is argued that sustainability reports are primarily
limited in their ability to determine which issues to measure and how to respond to these
issues (Whitehead, 2017). The third important issue is the existing divergence between the
domains of sustainability assessment, reporting, accounting and management control in
both theory and practice among sustainability standards. This is a major barrier to
comprehending the integration and a common understanding of sustainability at the firm
level (Witjes et al., 2017).
These complexities inevitably affect the authenticity and quality of the contents in
sustainability reports (Hahn and K€
uhnen, 2013;Lock and Seele, 2016;Witjes et al., 2017).
Consequently, firms face a core challenge: their constrained ability to pinpoint material
issues for diverse stakeholders and subsequently prioritize these matters in line with
stakeholder expectations (Ferrero-Ferrero et al., 2020;Torelli et al., 2020). Experts, both
from academia and industry, advocate for comprehensive materiality assessments to
refine sustainability reporting and effective business strategies (Khan et al., 2016;Rogers
and Serafeim, 2019;Whitehead, 2017). As noted by Bartels et al. (2014), a materiality
assessment transcends mere reporting, serving as the foundation for sustainability
strategy, stakeholder engagement and performance management. Indeed, a recent review
of the scholarly work on materiality in sustainability reporting by Fiandrino et al. (2022)
highlights, among other important issues, the exponential growth in materiality research
in the last two decades along with the diversity in how materiality is defined, measured
and assessed.
Fiandrino’s et al. (2022) review offers a commendable initial synthesis of emerging
literature on materiality in nonfinancial reporting, emphasizing prevalent research
methods and theoretical foundations. Yet, our review endeavors to offer a more
comprehensive understanding of how materiality in the context of sustainability
reporting is measured, evaluated and gauged by preparers, auditors and users.
Exploring these research dimensions becomes even more pertinent against the backdrop
of the ongoing discourse on single versus double materiality and regulatory reforms of
sustainability reporting.
The remainder of the review is organized as follows: Section 2 outlines the review
methodology and sample descriptives, Section 3 summarizes the overall findings of the
review, Section 4 summarizes the various ex ante materiality measures, Section 5
summarizes the various ex post materiality measures, Sections 5 and 6summarize the
findings on consequences and determinants of materiality disclosures, respectively and
Section 6 ends with concluding remarks and suggestions for future research.
Journal of
Accounting
Literature
Review methodology
The main objectives of the review are as follows: (1) How is materiality measured in the
context of sustainability reporting and (2) What are the consequences and determinants of
materiality disclosures in sustainability reporting. To attain the objectives of the review we
conducted a systemic review of the academic literature based on the guideline outlined in
Kitchenham et al. (2009). Specifically, we use the following search query:
materiality and (sustain* or csr or non-financial or nonfinancial or esg)
We opted for Scopus as our primary search [3] platform because of its expansive reach
covering a multitude of respected and well-established journals. To maintain the integrity
and quality of our review, we decided to include only peer-reviewed journal articles, thereby
excluding conference papers, book chapters and other types of publications. Our search was
executed in April 2024, without setting any time frame limitations, enabling us to incorporate
both pioneering and recent research contributions.
In the initial phase of our systematic literature review, a thorough screening process was
conducted to filter out articles based on predefined inclusion and exclusion criteria, ensuring
replicability and thoroughness in our methodology. Our first step involved analyzing
abstracts to pinpoint articles that directly correlated with our review’s objectives. We looked
for studies that delve into the assessment, determination or measurement of materiality in
sustainability disclosures or issues and studies that document the consequences and
determinants of material disclosure. Following this, a comprehensive full-text screening of
the shortlisted articles was undertaken to finalize the selection of the papers for inclusion in
our review. Table 1 below summarizes the sample selection steps in this review. It may be
noted here that a vast majority of the studies do not explicitly work with materiality in
sustainability even though the term “material*” appears in the title, abstract or author
keywords of the studies. Such studies are excluded from the review after reading the full text
of those articles.
In Table 2 we summarize the distribution of the studies included in the review: in Panel A,
over the year of publication; in Panel B, across the main methodological approach adopted to
evaluate materiality and from whose perspective materiality is evaluated; and in Panel C,
across the timing of materiality evaluation (i.e. the two dominant themes of ex ante and ex
post materiality evaluation) and from whose perspective materiality is evaluated.
Overall findings
From the review of 39 articles included in this study, four themes/patterns emerged among
the studies that worked with materiality in sustainability. The two dominant themes are ex
post and ex ante evaluations of materiality. For the scope of this review, we differentiate
between ex post and ex ante evaluation of materiality in sustainability in the following
manner. Ex post evaluations gauge materiality in hindsight, scrutinizing which
Steps Description Articles
Step 1 Total search returns based on the keywords 122
Exclusion
criteria
Articles that do not relate to assessment or measurement or determination of
materiality in sustainability reporting or activities
9
Step 2 Excluded after screening abstract 21
Step 3 Excluded after screening full paper 53
Number of articles included in the review 39
Source(s): Authors’ own work
Table 1.
Sample selection for
the review
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Panel A: Distribution of the articles included in the review across the four themes in terms of publication year
Year/Themes 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Total
Ex ante 2 1 – 2 1 2 3 1 1 – 1 1 15
Ex post – – 1 1 3 1 4 3 3 3 3 1 23
Consequences – – – – – – – – – 1 2 – 3
Determinants – – – – 1 1 2 3 – 1 – 1 9
Total 2 1 1 3 5 4 9 7 4 5 5 2
Panel B: Distribution of the articles included in the review across the main methodological approach adopted to evaluate materiality and from whose perspective
materiality is evaluated
Perspective/Methodology Auditors Managers Specific stakeholder(s) No specific stakeholder Total
Archival or deterministic modelling – 4 4 16 24
Case study, conceptual, observational or interviews – – 2 – 2
Experiment 2 – 2 – 4
Survey – 1 1 – 2
Mixed
a
– 5 2 4 11
Total 2 10 11 20
a
Some studies have employed more than one method to evaluate materiality, for example, content analysis along with survey, interview or multi-criteria decision
analysis methods. For more detail classification, please refer to Table 3
Panel C: Distribution of the articles included in the review across the timing of materiality evaluation and from whose perspective materiality is evaluated
Auditors Managers Specific stakeholder(s) No specific stakeholder
Ex ante 2 7 4 2
Ex post – 3 6 18
Source(s): Authors’ own work
Table 2.
Sample distribution
Journal of
Accounting
Literature
sustainability disclosures were material after their release. Studies on this theme
predominantly evaluate sustainability disclosures or ESG ratings from various
proprietary raters to assess or determine materiality. In assessing materiality purely
based on disclosures in the sustainability reports, most studies generally rely on manual
content analysis methods to capture the depth and breadth of information provided across a
particular sustainability issue. Thus, measures constructed to evaluate materiality are often
not validated against stakeholder expectations or prevailing standards, such as GRI, IR or
SASB. A handful of these studies engage with stakeholders through surveys or interviews or
any other means for external validation, while studies evaluating materiality based on ESG
ratings predominantly use SASB materiality map to seek external validation of the
materiality measures. On the other hand, ex ante evaluations aim to forecast materiality, i.e.
attempting to identify sustainability issues that are deemed to be crucial for a specific firm or
industry prior to their disclosure. Intriguingly, many ex ante measures are often formulated
based on ex post sustainability disclosures. Nonetheless, studies of ex ante evaluations
introduce many innovative ways for materiality evaluation and bring more nuanced
approaches to evaluate materiality at micro-level. The next two themes are consequences and
determinants of material disclosure. It may be noted here, most scholarly works that develop
ex post materiality measure also study the determinants of material disclosure based on the
materiality measure developed, thus scholarly works grouped under the two themes greatly
overlap. In Table 3, we summarize the sample distribution across the four themes, the main
methodological approach adopted to evaluate materiality and from whose perspective
materiality is evaluated. In Table 4, the summary of the main results across the four themes is
presented.
Ex ante materiality evaluations
Studies on ex ante measures of materiality are rather limited. Some of these measures are
developed through deterministic modelling (e.g. Calabrese et al., 2016;Corazza, 2018;Della
Volpi and Paulino, 2018;Hsu et al., 2013;Sanatkumar and Berka-Harnmeijer, 2024;
Whitehead, 2017;Xu et al., 2019) while other studies employ experiments to identify material
issues for different groups (e.g. Moroney and Trotman (2016) for managers or preparers;
Green and Cheng (2019) for auditors; Reimsbach et al. (2020) for employees and stock market
participants. There are some studies that employ survey methods to identify material issues,
e.g. Maama et al. (2022) from the perspective of minority shareholders, and Karim et al. (2013)
from the perspective of managers.
Deterministic and archival based
Hsu et al. (2013) developed a materiality analysis method based on risk priority numbers
(RPNs) for a failure modes and effects analysis (FMEA) and implement an analytic network
process (ANP) to identify material sustainability issues. First, they interview managers to
assign RPNs for sustainability issues for the FMEA model. The evaluation criteria for FMEA
for various sustainability issues are: (1) the percentage of concerned stakeholders
(Occurrence – O), (2) the level of concern to stakeholders (Detected – D) and (3) the impact
of issues to strategic communication (Severity – S), where RPN 5O x D x S. The criteria of
occurrence and detection were then launched, based on the opinions of different stakeholders
to translate stakeholder interests into a series of decisions on what to include and exclude in
the sustainability report. Next, the decision-makers assign a pair-wise importance value to
any two criteria at a time for a specific sustainability issue. Finally, the ANP method is
employed to determine the relative weight (i.e. stakeholders’ vs managers’ opinion) for the
different sustainability issues to identify the material sustainability issues.
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No Study
Themes
Methodological approach
to evaluate materiality
Perspective of
materiality
evaluation
Ex Ante
materiality
evaluation
Ex Post
materiality
evaluation
Consequences of
material disclosures
Determinants of
material disclosures
1Aras et al. (2017) – X – – Content analysis and multi-
criteria decision analysis
Stakeholders
2Berquier and Gibassier
(2019)
X – – – Observational and
interviews
Manager and
inhabitants
3Beske et al. (2020) – X – – Content analysis Stakeholders
4Boiral et al. (2020) – – – X Interviews Practitioners
5Busch et al. (2022) – X X ESG ratings based Investors
6Calabrese et al. (2016) X – – – Multi-criteria decision
analysis
Managers
7Calabrese et al. (2015) – X – – Content analysis and
survey
Customers
8Clarvis et al. (2014) X – – – Conceptual (framework
building)
Investors
9Corazza (2018) X – – – Content analysis Managers
10 Della Volpi and Paulino
(2018)
X – – – Content analysis Managers
11 Farooq et al. (2021) – X – – Content analysis Stakeholders
12 Fasan and Mio (2017) – X – X Content analysis Stakeholders
13 Gerwanski et al. (2019) – X – X Content analysis Stakeholders
14 Green and Cheng (2019) X – – – Experiment Auditors
15 Hassan et al. (2019) – X – – Content analysis Stakeholders
16 Hsu et al. (2013) X – – – Interviews and multi-
criteria decision analysis
Managers
17 Karagiannis et al. (2019) – X – – Content analysis Stakeholders
18 Karim et al. (2013) X – – – Survey Managers
19 Khan et al. (2016) – X – – ESG ratings based Investors
20 Maama et al. (2022) – X – – Survey Minority
stakeholders
21 Maniora et al. (2018) – X – X ESG ratings based Investors
(continued )
Table 3.
Distribution of studies
included in the review
across the four themes,
the main
methodological
approach adopted to
evaluate materiality,
and from whose
perspective materiality
is evaluated
Journal of
Accounting
Literature
No Study
Themes
Methodological approach
to evaluate materiality
Perspective of
materiality
evaluation
Ex Ante
materiality
evaluation
Ex Post
materiality
evaluation
Consequences of
material disclosures
Determinants of
material disclosures
22 Mio et al. (2020) – X – X Content analysis and
interviews
Managers and
stakeholders
23 Morgan et al. (2017) – X – – Content analysis Stakeholders
24 Moroney and Trotman
(2016)
X – – – Experiment Auditors
25 Ngu and Amran (2021) X – – – Content analysis Stakeholders
26 Pigatto et al. (2023) – X – – Content analysis Stakeholders
27 Pizzi et al. (2023) – X – – Content analysis Stakeholders
28 Pratoomsuwan and
Chiaravutthi (2023)
X – X – Experiment Investors
29 Puroila and M€
akel€
a
(2019)
– X – X Content analysis Stakeholders
30 Reimsbach et al. (2020) X – – – Experiment Investors and
potential employees
31 Ruiz-Lozano et al. (2022) X – X Content analysis Stakeholders
32 Sanatkumar and Berka-
Harnmeijer (2024)
X – – X Interviews and multi-
criteria decision analysis
Managers and
stakeholders
33 Sep�
ulveda-Alzate et al.
(2021)
– X – – Content analysis and
principal component
analysis
Managers and
stakeholders
34 Setia et al. (2024) – X – – Content analysis Stakeholders
35 Tirado-Valencia et al.
(2021)
– X – – Content analysis Stakeholders
36 Torelli et al. (2020) – X – X Content analysis Stakeholders
37 Whitehead (2017) X – – – Content analysis Stakeholders
38 Xie et al. (2023) – X X – ESG ratings based Investors
39 Xu et al. (2019) X – – – Multi-criteria decision
analysis
Managers
Source(s): Authors’ own work
Table 3.
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Themes Methods Main findings
Ex post measure of materiality Archival Ex post materiality assessments employ content analysis predominantly, with variations in
methodologies based on stakeholder engagement and ESG ratings. Approaches without stakeholder
engagement, such as Fasan and Mio (2017) and Torelli et al. (2020), often utilize manual content
analysis, assessing word count, relevance, or specific disclosure dimensions. Some, like Gerwanski et al.
(2019), integrate materiality sections and comprehensive identification processes. Others, such as Aras
et al. (2017) and Morgan et al. (2017), combine content analysis with entropy, TOPSIS, or frameworks
such as FSSD and ISM. Indices by Beske et al. (2020) and Karagiannis et al. (2019) and the IIRC
framework in Hassan et al. (2019) also showcase variations of content analysis-based materiality
assessment. Approaches with stakeholder engagement include Calabrese et al. (2015) and Sep�
ulveda-
Alzate et al. (2021), who incorporate customer and stakeholder feedback respectively. Pizzi et al. (2023)
introduce dynamic materiality via social media interactions. ESG ratings-based studies, exemplified by
Khan et al. (2016) and Busch et al. (2022), leverage ratings for materiality determination. Together, these
studies offer comprehensive insights into ex post materiality, combining internal and external
perspectives for a nuanced understanding of material issues
Ex ante measure of materiality Deterministic
Experiments
Interviews
Surveys (combinations of
one or more)
Materiality at aggregate
level
The four categories of ex ante materiality assessment methods offer diverse insights and approaches for
understanding and implementing materiality in sustainability reporting before the disclosure.
Deterministic and archival based studies, exemplified by Hsu et al. (2013) and Calabrese et al. (2016),
emphasize risk-based frameworks and fuzzy analytical hierarchy processes, showcasing the
significance of objective, quantitative methods in anticipating material issues. Experiment-Based
studies, as demonstrated by Moroney and Trotman (2016),Green and Cheng (2019), and Reimsbach
et al. (2020), delve into the complexities of auditor judgments and stakeholder perceptions, underlining
the need for strategic focus, strategy maps, and understanding diverse perspectives in a proactive
manner. Survey based studies, like Karim et al. (2013), explore the role of firm size and stakeholder
perspectives, spotlighting the influence of organizational characteristics and minority stakeholders in
materiality determinations before disclosures. Materiality at aggregate level studies, such as Clarvis
et al. (2014) and Berquier and Gibassier (2019), broaden the scope to country and city levels, introducing
frameworks like E-RISC and highlighting the crucial interplay between environmental risks,
governance mechanisms, and the overall context in advance of the reporting period. In synthesis, these
ex ante categories collectively underscore the need for nuanced, context-specific materiality
assessments before the reporting cycle, emphasizing the incorporation of quantitative, stakeholder-
oriented, strategic, and micro- and macro-level considerations in comprehensive sustainability
reporting frameworks
(continued )
Table 4.
Thematic
classifications,
summary of methods,
and main findings
Journal of
Accounting
Literature
Themes Methods Main findings
Consequences of materiality Archival Ex post materiality assessments, predominantly employing archival methods, yield crucial insights into
the financial implications and investor responses to material CSR-related disclosures. Xie et al. (2023)
reveal pricing anomalies linked to shareholder-related environmental risks, emphasizing shareholders’
demand for higher returns in such scenarios. Pratoomsuwan and Chiaravutthi (2023) underscore the
pivotal role of CSR materiality in investment decisions, with a clear preference for firms with material
CSR over immaterial CSR. Their study also highlights that explicit materiality assessment influences
investor judgments but lessens the impact when CSR issues are immaterial. Bush et al. (2022) contribute
by demonstrating a positive correlation between continuous improvement in environmental ESG scores
and future corporate financial measures. These collective findings emphasize the financial
consequences of material disclosures and underscore the critical influence of materiality assessments on
shaping investor perceptions and decisions
Determinants of materiality
[further elaborated in Table 5]
Archival
Experiments
Surveys
Studies based on ex post materiality assessments, discourse of materiality determination process or the
quality of materiality disclosure offer nuanced insights into the determinants of materiality disclosure.
They are grouped in studies examining financial and accounting metrics, corporate governance,
reporting characteristics, market factors, institutional and regulatory contexts, and business strategy
reveal mixed results. Financial metrics, such as size and profitability, inconsistently explain material
disclosure, suggesting potential endogeneity concerns. Corporate governance, reporting assurance, and
ESG ratings exhibit varying relationships. Market factors, such as shareholding dilution, show
negative associations, while industry competition and strategic orientations yield diverse outcomes.
Additionally, the materiality determination process demonstrates inconsistencies across rating
agencies, Integrated and Sustainability Reporting, and stakeholder perceptions. These findings
underscore the intricacies of post-hoc materiality evaluations and call for a comprehensive
understanding of determinants in sustainability reporting
Source(s): Authors’ own work
Table 4.
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Calabrese et al. (2016) developed a fuzzy analytical hierarchy process method for materiality
assessment in sustainability reporting, purely from the perspective of the preparers. The
model is developed based on GRI guidelines where decision makers are asked to pair-wise
rank sustainability issues identified from GRI guidelines for their firm. The ranks are then
normalized and a fuzzy AHP modelling is applied to identify the material issues. They
validate their model by ex post analysis of sustainability reporting of an Italian SME
operating in design, manufacturing and consulting for water projects and hydraulic
components. They corroborate the validation through interviewing decision makers (e.g.
CEO) of the firm. It may be noted that the feedback is based on preparers and does not
incorporate stakeholders’ perception of material issues. In similar a vein, Della Volpi and
Paulino (2018) suggest an input and output model to identify material issues in the service
industry. They adopt a three-stage modelling. In the first stage, a literature review is
undertaken to compile data related to the environmental aspects of accommodation services.
In the second stage, the concept of life cycle thinking is applied in order to systematize data
obtained from the literature review and classify it according to inputs and outputs. In the
third stage, a service triangle approach is applied in order to incorporate the elementary
stages of the service provision and the environmental aspects associated with the materiality
sources of accommodation.
Whitehead (2017) identifies material issues in the context of the wine industry in New
Zealand. They perform a meta-analysis on 13 source documents [4] from the stakeholder
perspective of five different groups: scientific, regulatory, consumer, societal and business/
industry. They find natural capital to be the most material issue for the wine industry. Using
a similar methodological approach, Corazza (2018) illustrates a tool (CSR4UTOOL) primarily
developed for SMEs to self-assess sustainability issues that can be considered material for
their stakeholders. As a priori, the material information is classified by benchmarking GRI
model (3.1 version and related sector supplements), GBS (national Italian sustainability
reporting standard), GRI INGO, AA1000 Stakeholder engagement, OECD guidelines, UN
Global Compact, Italian NPOs Agency reporting guidelines, SA8000, ISO 14001, ISO 26000
and the EMAS scheme. The tool is developed as a web application that can ex ante facilitate
SMEs to identify material issues for their stakeholders while it can be also used ex post to
evaluate sustainability performance.
Xu et al. (2019) incorporate risk assessment in materiality analysis and develop a life cycle
assessment (LCA) model to prioritize resource allocation among supply chain stages from
two distinct perspectives (e.g. deep-versus broad-structure supply chain) for mitigating
supply chain sustainability risk. In the US context, they use the apparel sector as an example
of deep-structure supply chain where production at sub-stages takes place sequentially, and
the automotive sector as the broad-structure supply chain where production at various
lower-stages is carried out simultaneously to meet a higher-stage production. The model
evaluates supply chain sustainability risk in three steps. In the first step, major stages of the
supply chain are mapped, which requires a comprehensive understanding of the supply
chain context. In the second step, supply chain sustainability risk is quantified using risk
assessment space analysis (i.e. risk based on three dimensions comprising operational, social
and environmental risks) and materiality analysis (i.e. risk based on two dimensions
comprising location-based risk that is the potential risk relevant to the supplier’s location and
activity-based risk that is the potential risk relevant to the manufacturing activity). The third
step is not systematically articulated but focuses on how businesses, depending on their
priorities, improve on the risks quantified in step two by (re)allocating resources to the
various supply chain stages identified in the first step.
Sanatkumar and Berka-Harnmeijer (2024) use multi criteria decision analysis (MCDA) to
evaluate and prioritize environmental, social and economic goals by integrating them into
the decision-making process across different corporate scenarios. Through action research,
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MCDA was applied to three used cases within the corporations, where it facilitated the
development of decision models by collaborating with relevant staff. These models enabled
the ranking of sustainability issues based on a comprehensive set of criteria and measures,
which were tailored to reflect the unique goals and challenges of each scenario. The
implementation of MCDA proved effective in uncovering and weighing the potential impacts
and trade-offs of various sustainability initiatives. It also promoted a more inclusive
stakeholder engagement process, which was instrumental in challenging and refining the
traditional focus on cost minimization.
Experiment based
Moroney and Trotman (2016) set up a 2 x 2 x 2 experimental design with two within-subjects
manipulation (i.e. materiality in financial and water disclosures), while risks of breaching a
contract and community impact were each manipulated at two levels between subjects.
Participants comprised 82 auditors from three Big 4 accounting firms, of whom 48 were
managers and 34 were seniors with an average audit experience of 5.2 years. They find that
auditors’ assessments of financial and non-financial (water) materiality are significantly
different. This difference is significantly greater when there is no risk of breaching a contract
than when there is a risk of breaching a contract.
Green and Cheng (2019) also use auditors as participants with a 2 x 2 x (2) experimental
design where they manipulate two independent variables. The first independent variable is
their client firm’s strategic focus manipulated with strategic focus on supply chain
management versus customer service. Their second independent variable is the absence or
presence of a strategy map. In their set-up, the within-subject independent variable
manipulation relates the materiality assessments on NFPI relevant to a customer service
focus versus supply chain focus strategy. A total of 77 auditors from Big 4 audit firms took
part in the experiment with an average audit experiment of 4.83 years. The results show that,
while setting materiality thresholds, auditors do not consistently distinguish strategically
relevant versus irrelevant nonfinancial performance information. They also find that the
presence of a strategy map has a mediating effect. For example, a misstated nonfinancial
performance information of both high and low strategic relevance is assessed to be more
material than the low strategic relevance nonfinancial performance information in the
absence of a strategy map, compared to the presence of a strategy map NFPI.
Reimsbach et al. (2020) implement a 2 x 2 full-factorial between-subjects experimental
design. Participants comprised 129 capital market participants and 121 potential employees
and were assigned randomly to one of the four experimental groups. They find that
nonfinancial information is more material for potential employees than for capital market
participants. Moreover, capital market participants assess nonfinancial information about
energy to be more material than nonfinancial information about biodiversity. While, for
potential employees, the perceived relevance of receiving nonfinancial information on the
energy topic was statistically indistinguishable from receiving information on the
biodiversity topic. Finally, the differences in materiality level of energy versus
biodiversity are larger in the case of a strong change in nonfinancial performance for
capital market participants.
Survey based
Karim et al. (2013) investigate how firm size and public/private affiliation affect voluntary
disclosure decisions concerning quantitatively immaterial nonfinancial information. They
employ a survey with 24 cues (equal number of positives and negatives) which are
potentially identified as material by securities and exchange commission (SEC). A total of
136 managers participated in the survey and were asked to decide which of the 24 cues
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should be disclosed voluntarily. They find that managers of larger firms recommend
disclosing more items than managers of smaller firms. They do not find any significant
difference in materiality thresholds of private versus public firm managers, and public firm
managers have statistically equivalent qualitative materiality thresholds. They argue that
private firm managers strategically disclose most cues as they imitate a legitimizing
behavior due to SEC and financing concerns.
Materiality at aggregate level
Materiality evaluations are as important at macro level as at micro level, if not more so. Not
many studies evaluate materiality at macro level (e.g. country-, region-, city-levels, etc.) A
handful of studies that do evaluate materiality at macro level include Clarvis et al. (2014) and
Berquier and Gibassier (2019).
Clarvis et al.develop a framework (E-RISC) to assess the materiality of environmental
risks for the sovereign bond market. The E-RISC focuses on country level across four
dimensions (e.g. resource balance, trade risk, degradation risk and financial resilience) and 20
indicators. The framework allows users to assign weights to the 20 indicators, based on
relative importance and helps to identify and quantify linkages between tangible
environmental risks and macroeconomic factors that are deemed to affect sovereign credit
risk. Therefore, the framework allows users to make a deterministic assessment of how
environmental risks can be factored into investment decisions in the sovereign bond market
and thus may be considered an ex ante materiality measure.
Berquier and Gibassier (2019) focus on city level using a longitudinal case study approach to
follow the process through which a city and its residents tackle climate change. It is an
observational study that highlights the importance of appropriate development and execution
of governance mechanisms needed in shaping policies for and behaviors of its residents,
knowledge creation and use of information and communication to attain the stated objectives.
The study also identifies two important discourses, namely “model city” and “good citizen,”
where the identity of the “model city” was created by giving visibility to important
environmental factors and to institutional actors’ resolve and motivation. The identity of the
“good citizen” was created through inclusiveness and engagement. The study thus identifies
important ex ante factors that are conditional for obtaining material sustainable actions.
Ex post materiality evaluations
The majority of the studies that seek to determine materiality ex post heavily rely on content
analysis method. The studies are generally archival in nature and often test the determinants
of materiality disclosures proxied by the materiality measure developed ex post. Within this
broad category, the depth and breadth of materiality-related information in sustainability
disclosures often serve as the basis for content analysis-based measures. There are three
variations of the materiality measures developed, based on content analysis: (1) studies that
solely rely on the depth and breadth of the disclosures in sustainability reporting and do not
validate the measure through stakeholder engagement, (2) studies that explicitly include
stakeholder perception through direct engagement to validate the measures and (3) studies
that implicitly include stakeholder perception, e.g. cross-matching with ESG ratings or
materiality issues identified by standards such as GRI, IR, SASB, etc.
Approaches without stakeholder engagement
Fasan and Mio (2017) are one of the first researchers to propose such a content analysis-based
measure and many have built on their work, albeit with minor modifications. Notably, these
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measures hinge on manual content analysis, which inherently limits scalability. Fasan and
Mio (2017) rely on manual content analysis in developing the following materiality measures:
(1) Word count of “material”/“materiality” in connection with non-financial reporting or
to materiality determination process.
(2) Relevance of materiality disclosure: a categorical variable on a scale of 0–5, depending
on the depth and breadth of materiality information disclosed [5].
Building on the groundwork of Fasan and Mio’s (2017) framework, several other studies have
introduced their own adaptations (e.g. Farooq et al., 2021;Ngu and Amran, 2021;Pigatto
et al., 2023;Ruiz-Lozano et al., 2022;Torelli et al., 2020) and followed the second construct of
materiality, the “relevance of materiality disclosure” of Fasan and Mio (2017), with some
minor modifications. For example, scoring on a scale of 1–6, reference to stakeholder related
information in materiality disclosures, etc. Gerwanski et al. (2019) also build on Fasan and
Mio (2017) with significant modifications to the measure. Their study offered a considerably
altered approach. Their metric accounted for the presence of a distinct materiality section, the
comprehensiveness of the identification process description, details on various materiality
facets, time horizons, materiality matrices and discussions around risks, opportunities and
mitigation strategies.
Aras et al. (2017) complement the content analysis method of materiality evaluation
with two additional methods, namely entropy and TOPSIS. Specifically, they first set four
sustainability indicators – economic, environment, social and governance. In the next
step, they apply the content analysis method to extract disclosures across the four
sustainability indicators (events) – they define as the criteria values. A decision matrix is
then applied based on entropy to extract weights for different disclosures (categories)
within each event in subsequent steps. The assumption is that categories of event may
have unequal frequencies or probabilities. Finally, they apply the TOPSIS method, which
is a multi-criteria decision-making method, to rank the entropy weights. They primarily
aim to measure sustainability performance; however, an alternative interpretation can be
material disclosure across the sustainability indicators. In a similar vein, albeit using a
different methodology, Morgan et al. (2017) analyze publicly available data from large UK
retailers to systematically evaluate their initiatives designed to minimize consumer
emissions. Their assessment is rooted in understanding the material impact of these
initiatives in the context of sustainable consumer behavior. They sequentially use two
frameworks: a modified version of The Framework for Strategic Sustainable Development
(FSSD) to evaluate if retailers’ initiatives were likely to be successful in meeting their
sustainability objectives, and a modified version of Individual Social Material (ISM) to
assess what context of consumer behavior is targeted (e.g. individual, social or material).
The FSSD is operationalized at five levels: if the retailers define a clear scope (systems
level) and desired outcome (success level), and if it agrees with the strategy (strategic
guidelines level). The final levels are: the actions undertaken to achieve the objectives
(actions level) and the monitoring and learning while operationalizing the actions (tools
level). ISM evaluates if the firm initiatives are targeted at individuals directly or the
societal norms and conventions or products or infrastructure.
Beske et al. (2020) also developed a disclosure index based on manual content analysis.
Their index has the following dimensions: (a) definition of the materiality analysis, (b) the
aspects/topics reported and (c) the methods used to identify (c1) stakeholders and (c2)
aspects/topics. Karagiannis et al. (2019) investigate the sustainability issues disclosed by
airports and build their materiality measure in the following manner. For a sample of 33
reports from their initial sample of 55 airports, they first identify the total number of material
issues reported in all 33 reports and subsequently construct a measure for each airport
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through relative frequency, i.e. the number of material issues reported by an individual
airport relative to the total number of material issues identified for the sample of 33 reports.
Mio et al. (2020) also implement a relative frequency-based measure to classify material
issues for an Italian insurance firm. They first use an auto code function in a proprietary
software to auto code their sample of firm specific documents that deal with nonfinancial
topics and is not produced by a single firm function into themes. Next, by investigating the
keywords within those themes they connect the 20 predefined material issues. This process
essentially identifies the most frequently used words under a predefined number of themes
(in this case, 20 material issues). They validate the results from content analysis with semi-
structured interviews with managers.
Hassan et al. (2019) build on the IIRC framework and use a content analysis method to
construct their materiality score, while focusing on higher education institutions in the UK.
They construct the score based on the presence/absence and depth of information provided
across eight IIRC issues, i.e. organizational overview and external environment, governance,
business model, risk and opportunities, strategy and resource allocation, performance,
outlook and basis of preparation and presentation. They weight the disclosure index across
the eight issues as follows: no disclosure 50, descriptive disclosure without any link to
strategy, governance, performance and prospect 51, descriptive disclosure and link with all
strategy, governance, performance and prospect compared with historic position 52,
descriptive disclosure linked with all strategy, governance, performance and prospect
compare with historic, present and future position 53. A higher total score indicates a better
alignment with the IIRC framework. Along similar lines, Tirado-Valencia et al. (2021) focus
on public entities and use content an analysis and construct measure, namely “integrated
thinking” across five dimensions based on sustainability disclosure – connectivity, external
focus, integrated planning, effective governance and integrated communication. The five
dimensions are motivated by the IIRC reporting framework and are further divided and
scored across 16 variables that essentially measure the depth and breadth of disclosure
across the five dimensions, and one variable that considers the length of the reports. In a
similar vein, Setia et al. (2024) developed an index to differentiate between financial
materiality and impact (or double) materiality by hand-mapping GRI’s G4 Guidelines with
the UN Sustainable Development Goals. Their sample consisted of 40 firms from the
International Integrated Reporting Council’s Pilot Program Business Network, spanning the
years 2015–2017. A distinguishing feature of the Setia et al. (2024) study is that their
approach distinguishes between financially-material and impact-material sustainability-
related information. They find that despite the IR Framework’s emphasis on financial
materiality, impact-material disclosures, especially those related to environmental aspects,
were more prominently reported than those on financial aspects. This indicates a richer,
multi-dimensional approach to materiality, where industry sensitivity and national legal
frameworks influence the balance of disclosures.
Approaches with stakeholder engagement
The studies discussed hitherto do not engage with stakeholders to verify if the measured
materiality is indeed considered material by various stakeholders. One exception is
Calabrese et al. (2015) who incorporate customer feedback in the process of evaluating
material disclosures by firms. Specifically, they developed a three-step model to evaluate
materiality disclosure based on customer feedback. In the first step, they measure CSR
commitment based on firms’ disclosure in sustainability reporting. In the second step, they
survey customers for feedback on firms’ disclosed CSR commitments. In the third step, they
propose that the materiality dealignment is the gap between customer needs and firm
commitments. Sep�
ulveda-Alzate et al. (2021) also incorporate stakeholder feedback in their
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principal component analysis to build their materiality measure. They first manually
identify sustainability-related issues disclosed by firms in their reporting. In the next step,
they independently ask firms and stakeholders to rank/prioritize each of the sustainability
issues identified at three levels: low (1), medium (2) or of high (3) importance. Maama et al.
(2022) employ a survey among minority stakeholders (e.g. small shareholders, staff, students
and community members) and ascertain materiality in disclosures by assessing if the
information needs of the various stakeholders were fulfilled by the sample firms. Specifically,
they include 36 firms listed in the Ghana Stock Exchange and classify their reports of 2017
and 2018 based on GRI guidelines. While the study is more descriptive in nature, it
operationalizes a useful method of materiality determination based on information needs of
minority stakeholders.
Pizzi et al. (2023) provide an alternative measure of materiality evaluation by including
stakeholders’ perception in the process of materiality determination, which they frame as
dynamic materiality. Their proxy for material disclosure is the extent of stakeholder
engagement with a specific CSR disclosure. They measure the extent of stakeholder
engagement through “favorites” and “retweets” of firms’ tweets on X (formerly Twitter).
They also move away from evaluating traditional dissemination of nonfinancial information
in CSR reports to sustainability disclosures through social media platforms, specifically
Twitter, in the context of the COVID-19 pandemic. The study also highlights how firms are
adapting their accountability practices and how they communicate with stakeholders in
response to emerging challenges, such as COVID-19 pandemic.
ESG ratings-based approaches
One of the first studies to use ESG ratings to evaluate materiality is Khan et al. (2016) who
construct the materiality measure based on the ESG rating provided by MSCI (formerly KLD
and GMI). They define materiality as the difference between ESG strength and ESG concerns
of a particular sustainability issue identified as material by SASB for a particular industry.
Therefore, whether a sustainability issue is deemed material for a particular firm is
determined by its industry classification. This materiality measurement approach was also
adopted by others, e.g. Busch et al. (2022) and Maniora (2018). A rather intuitive approach
materiality assessment from ESG ratings is developed by Busch et al. (2022). They
specifically zoom in on the environmental scores provided by ISS-oekom and MSCI ESG IVA.
Their materiality measure is the continuous improvement for the ESG ratings along the
environment dimension where the continuous improvement is measured in two variants, at
aggregate and individual environmental dimensions level. The two variants are:
(1) difference between the change in score between two years and the change in score
between two years plus a tally on cumulative improvement over the years, and (2) average
change in score over the years.
Consequences of material disclosures
In an archival setup, Xie et al. (2023) use Refinitv- and SASB-based E score to test if pricing
anomalies exist, based on the E scores and find the presence of financial materiality risk, and
that shareholders expect higher return if exposed to shareholder-related environmental risk.
In other words, investors consider firms not engaging in material environmental
management a significant risk and ask for compensation for their exposure to this
environmental risk. Pratoomsuwan and Chiaravutthi (2023) implement a 2 x 2 between-
subject experiment with 136 participants who are finance-related professionals, with the
largest proportion being financial analysts, credit rating analysts and investment bankers.
They test the influence of explicit assessment and CSR materiality on professional investors’
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investment decisions. They find that investors’ willingness to invest is greater in material
CSR compared to immaterial CSR. The assessment of willingness to invest in a firm’s stock is
not affected by the presence or absence of explicit materiality assessment. However, explicit
assessment significantly removes the effect of CSR performance on the investor’s investment
judgment when CSR issues are immaterial. Finally, Busch et al. (2022) show that continuous
improvement on environmental ESG score is positively associated with future accounting
and market-based corporate financial measures.
Determinants of material disclosures
In this section, we summarize the findings on the determinants of materiality disclosure.
These studies investigate determinants of material disclosure based on ex post measures,
discourse of the materiality determination process or the quality of materiality disclosure.
We group these determinants into financial and accounting metrics, corporate governance
and leadership, reporting characteristics, market and investment factors, institutional and
regulatory context, industry specifics and business strategy. The sample period of these
studies covers the period from 1991 to 2017, across multiple countries, and encompasses both
longitudinal and cross-sectional analyses. A summary of findings from eight out of ten
studies in this theme is presented in Table 5. Among these, Maniora (2018) uses an ESG
based measure of materiality and the remaining seven studies (e.g. Fasan and Mio, 2017;
Farooq et al., 2021;Gerwanski et al., 2019;Hassan et al., 2019;Ngu and Amran, 2021;Torelli
et al., 2020;Ruiz-Lozano et al., 2022) use a depth and breadth of information-based measure
utilizing content analysis of CSR reporting-based approach.
Financial and accounting metrics are often used as control variables in the literature and
include abnormal accruals, leverage, profitability and firm size. These factors are mostly
found to be insignificant as determinants of material disclosures. For example, Ruiz-Lozano
et al. (2022) documented firm size to positively affect material disclosures in the Spanish
setting while the other six studies (e.g. Maniora, 2018;Fasan and Mio, 2017;Gerwanski et al.,
2019;Hassan et al., 2019;Ngu and Amran, 2021;Torelli et al., 2020) found size having no
significant effect on material disclosure. Farooq et al. (2021) found leverage to be negatively
associated with material disclosure in the Gulf cooperation council countries, while three
studies, e.g. Maniora (2018) in the US-setting; Ngu and Amran (2021) in the Malaysian-setting
and Torelli et al. (2020) in the Italian-setting, found leverage to be insignificant. Fasan and
Mio (2017) and Farooq et al. (2021) found profitability to be positively associated with
material disclosure in countries participating in the IIRC pilot program and GULF
cooperation council respectively, but four studies in other setting found profitability to be
insignificant, e.g. Gerwanski et al. (2019) in a European and South African setting; Maniora
(2018) in a US-setting; Ngu and Amran (2021) in a Malaysian-setting and Torelli et al. (2020)
in an Italian-setting. The mixed results thus indicate firm fundamentals do not consistently
explain material disclosure and that there are endogeneity concerns partly from the
perspective of measurement errors. Similar reasoning applies to other factors studied as
determinants of material disclosure. For instance, corporate governance and leadership
factors studied in the literature (e.g. presence of audit committee, board gender diversity,
board independence, board size, frequency of board meetings, Big 4 audit, stakeholder
engagement); reporting characteristics measured as assurance of CSR reports, ESG rating,
prior experience in reporting and readability of reports; institutional (e.g. GDP, governance
quality, regulatory quality, voice and accountability index) and regulatory context (e.g. GRI,
IIRC Directive, NFRD Directive) also provide mixed results – either insignificantly or
positively related to material disclosure. Among market-based measures, shareholding
dilution was documented by Gerwanski et al. (2019) to be negatively associated with material
disclosure, while other measures, such as Dow Jones Sustainability Index and Tobin’s Q
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Determinants Relationship Sample coverage
Time-
horizon Study
Financial and Accounting Metrics
Abnormal accruals not sig. Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
Firm age positive UK higher education
institutions
2013–2016 Hassan et al. (2019)
Funding –
endowments
Funding – public
not sig.
negative
UK higher education
institutions
2013–2016 Hassan et al. (2019)
Growth not sig. UK higher education
institutions
2013–2016 Hassan et al. (2019)
Liquidity not sig. UK higher education
institutions
2013–2016 Hassan et al. (2019)
Leverage not sig. USA 1991–2014 Maniora et al. (2018)
negative Gulf cooperation
council countries
2013–2017 Farooq et al. (2021)
not sig. Malaysia 2015 Ngu and Amran (2021)
not sig. Italy 2017 Torelli et al. (2020)
Return on assets not sig. USA 1991–2014 Maniora et al. (2018)
positive IIRC pilot program 2012–2013 Fasan and Mio (2017)
positive Gulf cooperation
council countries Italy
2013–2017 Farooq et al. (2021)
not sig. 2017 Torelli et al. (2020)
Return on equity not sig. Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
not sig. Malaysia 2015 Ngu and Amran (2021)
Size not sig. USA 1991–2014 Maniora et al. (2018)
not sig. IIRC pilot program 2012–2013 Fasan and Mio (2017)
positive UK higher education
institutions
2013–2016 Gerwanski et al. (2019)
not sig. Europe and South
Africa
2013–2016 Hassan et al. (2019)
not sig. Gulf cooperation
council countries
2013–2017 Farooq et al. (2021)
not sig. Malaysia 2015 Ngu and Amran (2021)
not sig. Italy 2017 Torelli et al. (2020)
positive Spain 2017 Ruiz-Lozano et al. (2022)
Corporate Governance and Leadership
Audit committee not sig. Spain 2017 Ruiz-Lozano et al. (2022)
Board gender
diversity
not sig. IIRC pilot program 2012–2013 Fasan and Mio (2017)
positive Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
Board independence not sig. IIRC pilot program 2012–2013 Fasan and Mio (2017)
positive Gulf cooperation
council countries
2013–2017 Farooq et al. (2021)
positive Malaysia 2015 Ngu and Amran (2021)
Board size positive IIRC pilot program 2012–2013 Fasan and Mio (2017)
not sig. UK higher education
institutions
2013–2016 Hassan et al. (2019)
not sig. Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
not sig. Malaysia 2015 Ngu and Amran (2021)
(continued )
Table 5.
Summary of
determinants of
material or materiality
related disclosures
based on past literature
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Determinants Relationship Sample coverage
Time-
horizon Study
Board meeting not sig. IIRC pilot program 2012–2013 Fasan and Mio (2017)
positive Malaysia 2015 Ngu and Amran (2021)
Big 4 audit not sig. USA 1991–2014 Maniora et al. (2018)
Stakeholder
engagement
not sig. Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
positive Italy 2017 Torelli et al. (2020)
Reporting Characteristics
Assurance positive Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
not sig. Italy 2017 Torelli et al. (2020)
positive Spain 2017 Ruiz-Lozano et al. (2022)
ESG rating not sig. Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
Prior reporting positive Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
not sig. Italy 2017 Torelli et al. (2020)
Readability not sig. Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
Market and Investment Factors
Cost of financing not sig. USA 1991–2014 Maniora et al. (2018)
Dow Jones
Sustainability index
not sig. Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
FTSE MIB index not sig. Italy 2017 Torelli et al. (2020)
Institutional
ownership
not sig. USA 1991–2014 Maniora et al. (2018)
not sig. Spain 2017 Ruiz-Lozano et al. (2022)
Market-to-book not sig. USA 1991–2014 Maniora et al. (2018)
not sig. Gulf cooperation
council countries
2013–2017 Farooq et al. (2021)
Shareholding dilution negative Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
Tobin’s Q not sig. Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
Institutional and Regulatory Context
GDP growth not sig. Gulf cooperation
council countries
2013–2017 Farooq et al. (2021)
GDP not sig. Gulf cooperation
council countries
2013–2017 Farooq et al. (2021)
Governance quality positive Gulf cooperation
council countries
2013–2017 Farooq et al. (2021)
GRI positive Italy 2017 Torelli et al. (2020)
positive Germany 2017 Beske et al. (2020)
positive Spain 2017 Ruiz-Lozano et al. (2022)
IIRC Directive positive UK higher education
institutions Italy
2013–2016 Hassan et al. (2019)
not sig. 2017 Torelli et al. (2020)
Mandatory reporting not sig. Europe and South
Africa
2013–2016 Gerwanski et al. (2019)
Regulatory quality not sig. Gulf cooperation
council countries
2013–2017 Farooq et al. (2021)
Voice and
accountability index
positive Gulf cooperation
council countries
2013–2017 Farooq et al. (2021)
(continued)Table 5.
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(Gerwanski et al., 2019), FTSE MIB Index (Torelli et al., 2020), Market-to-book (Maniora,
2018;Farooq et al., 2021) and cost of financing (Maniora, 2018), showed an insignificant
relationship. Maniora (2018) included business strategy-related factors for a sample of US
firms and found that prospector firms have a negative relationship and defender firms have
an insignificant relationship with material disclosure. However, at aggregate, business
strategy has no significant relationship with material disclosure. Finally, material disclosure
does not vary significantly across industries or due to industry competition. However,
sensitive industries have mixed results – either insignificantly or negatively related.
In addition to the studies presented above, Boiral et al. (2020) found that the materiality-
determination process and interpretation of materiality are not consistent across rating
agencies. Mio et al. (2020) documented that integrated reporting and sustainability reporting
results in different material issues. Finally, Puroila and M€
akel€
a (2019) find that an important
determinant of sustainability issue is the type of stakeholder and not stakeholders as a
single-entity, and there is a great divergence between the stakeholders and the business on
the importance of various sustainability issues.
Together, the studies included in this review highlight the complex nature and
importance of the double materiality approach in determining sustainability issues. Firstly,
not all sustainability issues are equally important to all stakeholders. Secondly, the
importance of a particular sustainability issue often varies distinctively for the stakeholders
as a group and the firm. For example, Puroila and M€
akel€
a (2019) document that stakeholders
like the government are interested in “impact investment” while media and suppliers are not;
NGOs and the government is interested in issues like “employment of marginalized and
Indigenous groups” while media and suppliers are interested in “diversity and inclusion”
from different perspectives; suppliers are more interested in “sustainable sourcing”, NGOs
are more interested in “increased donor competition” and government and regulators are
more interested in issues like “natural capital and environmental policies” and
“environmental performance,” respectively; lastly, for government and NGOs “supporting
economic growth” is important, however, not for the other stakeholders included in their
study. On the other hand, Reimsbach et al. (2020) documented that investors’ magnitude of
relevance for a sustainability issue (energy vs biodiversity) was contingent on the risk or
financial impact while prospective employees were indifferent (statistically) regarding the
two topics. In the context of the wine industry in New Zealand, Whitehead (2017) finds that
climate change and other environmental issues are the most important issues for
Determinants Relationship Sample coverage
Time-
horizon Study
Industry Specifics
Industry not sig. Spain 2017 Ruiz-Lozano et al. (2022)
Industry competition not sig. USA 1991–2014 Maniora et al. (2018)
Sensitive industry not sig. Malaysia 2015 Ngu and Amran (2021)
negative Italy 2017 Torelli et al. (2020)
Business Strategy
Strategy negative USA 1991–2014 Maniora et al. (2018)
Prospector negative USA 1991–2014 Maniora et al. (2018)
Defender not sig. USA 1991–2014 Maniora et al. (2018)
Note(s): [positive] indicates positive relationship significance at 5% level; [negative] indicates negative
relationship significance at 5% level; [not sig.] indicates no significance relationship at 5% level
Source(s): Authors’ own work
Table 5.
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stakeholders while socio-economic issues such as labor conditions and governance-related
issues in general are not. Climate change was also shown to be an important sustainability
issue for local government bodies in the context of “Smart City” by Berquier and Gibassier
(2019) but not for its inhabitants (i.e. citizens), primarily due to increased intervention in
citizens’ daily lives. On the other hand, several studies documented the misalignment of
firms’ and stakeholders’ assessment of the relevance of a sustainability issue. For example, in
terms of the firm’s identification or disclosure and the information needs for stakeholders
(e.g. Calabrese et al. (2015) for customers; Maama et al. (2022) for non-shareholding
stakeholders) and in terms of the importance of a particular sustainability issue for the firm
and other stakeholders (e.g. Puroila and M€
akel€
a (2019)). One potential way for firms to
address the divergences and lack of univocality of sustainability issues is through a
systematic “impact assessment” of various sustainability issues for the relevant
stakeholders that the double materiality approach promises (European Commission, 2023).
Concluding remarks and suggestions for future research
Purpose and scope of the review
This review explored how materiality in sustainability disclosures is gauged, defined and
executed by preparers, auditors and users as documented in the extant scholarly work. While
materiality has recently emerged as a focal point of discussions in the context of
sustainability, particularly within the single and double materiality debates, its empirical
examination in sustainability reporting remains in its infancy, highlighting a significant gap
in current research. Furthermore, even if incorporated, empirical evidence suggests that the
adoption of double materiality principles is often superficial among European firms. A study
of firms indexed in the Dow Jones Sustainability Index revealed that many do not adhere to
the stringent requirements of double materiality, posing a risk to the credibility of
sustainability initiatives and the Sustainable Finance policy in Europe (Correa-Mej
�
ıa et al.,
2024). This finding emphasizes the urgency for empirical research that can inform more
robust regulatory frameworks and assurance practices, ensuring that firms move beyond
mere compliance toward genuinely integrating sustainability into their core strategies.
In summary, this review further highlights that even though some advancement has been
made in the area of materiality analysis in sustainability, empirical investigation of double
materiality is almost non-existent. Moreover, empirical analysis of materiality in
sustainability is rather fragmented and provides an inconclusive view. Our subsequent
discussions elaborate on these observations.
Predominant finding, emerging concerns and research gaps
Most of the materiality measures developed in the literature are too simplistic and
unidirectional in nature. For instance, the prevalent ex post materiality measure as devised
by Fasan and Mio (2017), its subsequent adaptations (e.g. Beske et al., 2020;Farooq et al.,
2021;Gerwanski et al., 2019;Hassan et al., 2019;Maama et al., 2022;Ngu and Amran, 2021;
Pigatto et al., 2023;Ruiz-Lozano et al., 2022;Torelli et al., 2020) and word-frequency based
measures implemented by Karagiannis et al. (2019) and Mio et al. (2020) predominantly
ignore the double materiality perspective and often overlook the diverse stakeholder
expectations as highlighted by Puroila and M€
akel€
a (2019) and others. While a few exceptions
exist, such as Calabrese et al. (2016), their purview remains limited to a singular stakeholder
group. Measures grounded in ESG ratings, like those by Khan et al. (2016) and others, tend to
prioritize investors, sidelining other stakeholders. Moreover, industry-specific material
disclosure variations, the influence of firm age, or the pervasive issue of ’greenwashing’ are
seldom incorporated into these measures. The current measures’ inherent limitations
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underscore the need for multi-faceted metrics that are scalable, discerning and take a double
materiality approach in a more nuanced sense. That is, measures that do not solely rely on the
depth and breadth of disclosure, ignoring the real impacts of a firm’s sustainability efforts.
Compared to ex post measures, ex ante measures are more nuanced but lack robust
validation. For instance, both Hsu et al. (2013) and Whitehead (2017) incorporate stakeholder
perspectives within their devised materiality measures, albeit using distinct research
methodologies. In contrast, Calabrese et al. (2016) prioritizes the viewpoint of preparers, and
Della Volpi and Paulino (2018) emphasize the lifecycle perspective, sidestepping direct
stakeholder considerations. However, a notable limitation across these studies is the narrow
focus of the developed materiality measures; the methodologies established by Hsu et al.
(2013),Calabrese (2016) and Della Volpi and Paulino (2018) are each anchored to a singular
firm, while Whitehead (2017) is concentrated on a specific industry. A more general model is
proposed by Xu et al. (2019) from a supply-chain perspective; however, their approach does
not provide adequate guidance on how to prioritize risk and materiality in various supply-
chain stages. Given this, it is imperative to test the applicability of the developed measures
across varied settings, potentially broadening the spectrum of stakeholders and
accommodating diverse industry nuances. Furthermore, auditors’ evaluation of
materiality perspective in the context of sustainability is seldom measured.
Our propositions and suggestions are well supported by the experimental studies that
have illuminated compelling insights into the nuances of (im)material classification. Notably,
Moroney and Trotman (2016) and Green and Cheng (2019) highlighted the dynamic shifts in
auditors’ materiality judgments when juxtaposing financial with nonfinancial items,
particularly under the shadow of information asymmetry. Reimsbach et al. (2020) further
delineate the contrasting valuation of financial and non-financial materiality across distinct
stakeholder groups, such as investors and employees. This thread is mirrored in survey-
based research; Maama et al. (2022) underscore the heterogeneity in materiality judgments
across minority shareholders, while Karim et al. (2013) emphasize that managerial disclosure
recommendations bear a relationship to firm size. On the other hand, Puroila and M€
akel€
a
(2019) document that specific sustainability issues are prioritized differently within
stakeholder groups and further highlight the mismatch of firm versus stakeholders’
importance of a particular sustainability issue. To add to that, the materiality determination
process and interpretation of materiality are not consistent across rating agencies (Boiral
et al., 2020), nor across different reporting frameworks (Mio et al., 2020). Collating these
insights, it becomes evident that materiality thresholds exhibit profound variability across
and within the domains of users, preparers, auditors and standard setters. This accentuates
the imperative for a more granular exploration into the informational needs of these diverse
actors, enhancing our holistic comprehension of materiality thresholds in sustainability
reporting. The findings also underscore an increasing need for sophisticated, multi-
dimensional measures to gauge material disclosures more effectively and consistently.
As a closing note, it is pivotal to highlight the double materiality facet – one of the most
debated nuances in sustainability disclosure. As established in the preceding discussions,
current discourses emphasize the unidirectional nature of present materiality measures. This
poses a critical lacuna, as empirical endeavors delving into sustainability reporting from a
double materiality vantage remain scant, urging for further scholarly pursuit in this arena. For
example, research on double materiality can benefit from developing materiality measures that
incorporate various stakeholders’ assessment of both firms’ sustainability efforts and
disclosures from the “impact materiality” perspective. That is, not just focus on the
disclosures or talks but also on the actions, i.e. the magnitude and relevance of the sustainability
efforts by firms. Materiality measures that incorporate the decision-making process of the
management (e.g. if and how various stakeholders are engaged in identifying material
sustainability issues and their potential impacts) will also improve the qualitative
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characteristics of future measures. Such materiality measures are also likely to enhance the
auditing of sustainability information in light of the CSRD. It is partly surprising that studies
evaluating auditors’ materiality assessment of sustainability-related information ex post are
non-existent. We note that the auditors were not mandatorily required to express audit opinions
on sustainability disclosure in the pre-CSRD period, nonetheless, assurance of such information
was prevalent. We expect future research in that line of inquiry to grow in the post-CSRD era.
Notes
1. The US Supreme Court defines an information as material if there is “a substantial likelihood that the
disclosure of the omitted fact would have been viewed by the reasonable investor as having
significantly altered the ‘total mix’ of information made available” (426 U.S. 438, June 14, 1976). This
definition has served as the legal standard of materiality since 1976, although accounting standard
setters and regulators historically relied on their own definitions of materiality. For example, FASB
defines materiality as “The omission or misstatement of an item in a financial report is material if, in
the light of surrounding circumstances, the magnitude of the item is such that it is probable that the
judgment of a reasonable person relying upon the report would have been changed or influenced by
the inclusion or correction of the item” (FASB, 1980). IASB through amendments to International
Accounting Standards (IAS) 1 and 8 in October 2018 defines materiality as “Information is material
if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that
the primary users of general purpose financial statements make on the basis of those financial
statements, which provide financial information about a specific reporting entity” (IASB, 2018). The
IAASB defines materiality as “Misstatements, including omissions, are considered to be material if
they, individually or in the aggregate, could reasonably be expected to influence the economic
decision of users taken on the basis of the financial statements (IAASB, 2008).” On the other hand,
materiality definition of the three most recognized standard setters in sustainability reporting is: (1)
IIRC: In the realm of ex ante materiality determination, IIRC focuses on the strategic foresight. It
encourages organizations to foresee which resources and relationships are most relevant to their
future success and their capacity to create value. This forward-looking approach allows for early
identification of potential risks and opportunities (IIRC, 2020); (2) GRI: GRI’s framework involves a
proactive stakeholder engagement process. Prior to reporting, organizations are encouraged to
interact with stakeholders to ascertain which sustainability topics are of utmost importance to them.
This iterative dialogue serves as an ex ante mechanism to shape the reporting content and prioritize
issues (GRI, 2024); (3) SASB: SASB’s ex ante materiality perspective is rooted in financial
materiality. The Board encourages firms to forecast how certain sustainability topics may have
direct financial implications in the future, even if they do not have so currently. By analyzing future
trends, market demands and regulatory landscapes, firms can make informed decisions on what
topics are likely to be material in upcoming years (SASB, 2022).
2. The ESRS are drafted by European Financial Reporting Advisory Group (EFRAG) and double
materiality is defined as “Double materiality has two dimensions, namely: impact materiality and
financial materiality.” Impact materiality is defined as “A sustainability matter is material from an
impact perspective when it pertains to the undertaking’s material actual or potential, positive or
negative impacts on people or the environment over the short-, medium- or long-term. Impacts
include those connected with the undertaking’s own operations and upstream and downstream
value chain, including through its products and services, as well as through its business
relationships. Business relationships include those in the undertaking’s upstream and downstream
value chain and are not limited to direct contractual relationships.” While financial materiality is
defined as “The financial materiality assessment corresponds to the identification of information
that is considered material for primary users of general-purpose financial reports in making
decisions relating to providing resources to the entity. In particular, information is considered
material for primary users of general-purpose financial reports if omitting, misstating or obscuring
that information could reasonably be expected to influence decisions that they make on the basis of
the undertaking’s sustainability statement” (European Commission, 2023). Evaluation of the
various definitions of materiality is beyond the scope of this review and has been discussed
elsewhere (see Abhayawansa, 2022;Clark, 2021;Cooper and Michelon, 2022).
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3. Some of the most commonly used terminologies in the literature for sustainability are corporate
social responsibility (CSR), environment, social and governance (ESG), non-financial and corporate
sustainability.
4. Including UNEP yearbook of sustainability issues, OECD eco labels, a survey on perception of
sustainability issues by SustainAbility-GlobeScan, ITC standards map, report on wine
sustainability by CEEV, research on sustainability issues of NZ wine industry by NZSD, Deloitte
Millennial Survey on perception of society on sustainability, WWTG sustainability matrix and Life
cycle assessment of wine making based on the work of Ardente et al. (2006).
5. Where “0” if there is no reference to materiality; “1” if a report only states that a materiality principle
was followed; “2” if the report includes a brief discussion of what is considered to be material; “3” if
the report communicates what material issues emerged from the analysis, i.e. beyond the discussion
of what is material; “4” if the process of materiality determination and the results are described in a
greater detail; and “5” if the report devotes significant attention to the materiality issue – which is of
course a very subjective judgement.
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(accessed 25 June 2020).
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Corresponding author
Asif M. Huq can be contacted at: asif.m.huq@hig.se
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