Academic research is moving away from trying to answer whether nonfinancial information is material to long-term value, to identifying which nonfinancial information is material.
Materiality is a fundamental principle of financial accounting from which a standardised solution of non-financial information can be based and provides an investment framework for investors.
Materiality recognises that nonfinancial information is important in assisting investors in making sustainable investment decisions, however the current disclosure environment poses significant challenges for both investors and firms, who need to identify the nonfinancial information that is material for investment analysis.
The disclosure of financial and nonfinancial information to shareholders and other stakeholders in the form of mandatory financial reports and voluntary communication is critical for the efficient functioning of capital markets.
Currently a disconnection exists between what ESG information companies disclose to their stakeholders and the data that actually drives management and investment decisions. Most agree that it is hard to know which information is business-critical for long term capital providers.
The Centre for Endowment Asset Management, in collaboration with the Bank of New York Mellon has supported research to enhance understanding of the disclosure needs of various stakeholders, and to identify commonalities and disparities in the supply of and demand for enhanced non-financial disclosure. The aim of this project is to uncover what constitutes material information for long-term investing.