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This is the fourth in a series of articles looking at how non-financial disclosure frameworks and advocates are causing companies – and regulators – to reconsider what “materiality” means.  This installment looks at double materiality.

Acting Corp Fin Director John Coates suggested last month that global comparability would be a desirable thing for ESG reporting. Although he laid out some advantages to doing that, it doesn’t seem like people are rushing to embrace the idea.  SEC Commissioner Hester Peirce made a statement last week to caution against a move toward global sustainability reporting framework. In particular, she took issue with the “double materiality” – here’s an excerpt:

The European concept of “double materiality” has no analogue in our regulatory scheme and the addition of specific ESG metrics, responsive to the wide-ranging interests of a broad set of “stakeholders,” would mark a departure from these fundamental aspects of our disclosure framework. The strength of our capital markets can be traced in part to our investor-focused disclosure rules and I worry about the implications a stakeholder-focused disclosure regime would have. Such a regime would likely expand the jurisdictional reach of the Commission, impose new costs on public companies, decrease the attractiveness of our capital markets, distort the allocation of capital, and undermine the role of shareholders in corporate governance.

Let us rethink the path we are taking before it is too late.

Proponents of double materiality acknowledge that ESG matters, whether they be impacts from or financial costs to the company, should be reflected in a way that balances that difference and importance.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile