This is the fifth and final 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 the concept of dynamic materiality.
The idea of dynamic materiality has potential significant legal uncertainty and complexity, but may also be an accurate reflection of where things stand today. As John pointed out a couple weeks ago, what is “material” took a recent odd (perhaps scary) turn when a supposed April Fool’s day joke by VW didn’t go as planned.
Richard Levick has long helped companies with crisis communication strategies (he also spoke on a webcast for us a couple years ago about “Politics as a Governance Risk” – even more relevant now). Richard recently wrote about companies being stuck between Scylla and Charybdis on responding to social issues of the day:
Brand neutrality is dead… Political contributions have become the new supply chain liability. But so is your DEI, environmental footprint, labor practices and more.
Proponents point to the speed, ubiquity and ease of global social media – combined with intangible assets (including brand value) making up 90% of current company market valuation – make reputational risk a material matter regardless of which materiality you choose. And that could make an argument validating dynamic materiality. At the same time, this is arguably the most complicated and least-tested ESG materiality concept of the four we have looked at.