Pathways to Materiality: How Sustainability Issues Become Financially Material to Corporations and Their Investors

Abstract

As sustainability issues, also labelled environmental, social and governance (ESG) issues, become financially material, companies, investors and regulators are designing strategies and policies to improve sustainability disclosure and performance. In this paper, we outline a framework of how sustainability issues become financially material arguing that materiality is not a “state of being�? but a “process of becoming.�? Our framework could assist companies and investors to make resource allocation decisions based on expectations about future materiality, social entrepreneurs and NGOs to develop their theories of social change, and policy makers to design disclosure regulations. Moreover, our framework generates predictions about the conditions under which sustainability issues become financially material that could be empirically tested in the future.