Materiality forms the conceptual bedrock of corporate reporting, yet no authoritative definition of it exists. In “Securities Regulation,”¹ Louis Loss points out that the legal field offers no specific definition of the word. Court opinions on materiality have merely sketched its conceptual contours. Every time materiality has been relevant to a legal case in the United States, the court has opined that it must be decided on a case-by-case basis.² The U.S. Supreme Court has also asserted that this determination must be based on both qualitative and quantitative factors based on the “total mix” of information made available.³ Further complicating the “total mix” standard set by the Supreme Court for evaluating potentially material omissions or misstatements, the Court left open the issue of “circularity” in its definition of materiality.⁴ Finally, the courts have also made clear that materiality must be determined with complete clarity. These opinions do not discuss “degrees” of materiality; materiality is binary. A fact is either material, in which case it should be reported, or is not material, in which case it does not need to be reported.

These “delicate assessments” are to be made by the corporation itself. Since investors have no voice in a company's materiality determination process other than through lawsuits (which lead to further guidance instead of specific answers), it is management's, and ultimately the board's, responsibility to ascertain what information its “reasonable investors” would want to know. In the end, materiality is determined by the corporation itself and it is entity-specific.⁵ While there may be no easy rule to follow in determining materiality, how companies go about making the ultimate decision of which externalities and issues are included in an integrated report should be a clearly defined process with solid lines of responsibility. The company's board of directors has the ultimate responsibility for putting in place a process that will enable it to make the final determination of what the company deems is material. In doing so, it establishes the legitimacy of the corporation's role in society.

In this chapter, we will not attempt to offer a precise definition of materiality. As accountant and historian Carla Edgley⁶ has shown, such crystallization of meaning is neither historically probable nor necessary for the term to accomplish what it should.⁷ There is also evidence that cultural context influences the meaning of materiality.⁸ Rather than pin the idea down, this chapter seeks to widen our understanding of what materiality is by reviewing how it has been treated in the worlds of financial and nonfinancial reporting. In scrutinizing the assumptions and historical precedents upon which the notion of materiality is based, we will show how integrated reporting materiality should be determined by focusing on who should define materiality and for whom it is determined.

The Social Construction of Materiality

Although materiality forms the conceptual bedrock of corporate reporting, it is ultimately a social construct. In The Construction of Social Reality, philosopher John Searle observes that society's institutional structures share a special feature of social construction: symbolism.⁹ The United Nations, Harvard University, the New York Stock Exchange, Rolex, the Red Cross, and Apple, for example, signify something beyond the sum of their parts. Their symbolic value is similar to brand power in that the mere mention of these institutions conjures expectations beyond what can be explained by their present “assets” and activities. As Apple is not the only company that makes innovative, imaginative products with attractive design, its products alone cannot explain the company's public monopoly on that combination of attributes or the fact that Forbes ranked it the world's most valuable brand in 2013.¹⁰ The fragmented body that is society projects meaning onto these institutions. Because societal agents like judges, commissioners, legislators, trustees, and board members consciously and intentionally foster this symbolism by reinforcing the reputation of these institutions, it can be said that these institutions are socially constructed: they exist only to the degree that meaning is shared between a given institution and its audience. Thus, meaning can exist without definition and, conversely, definition does not confer meaning.

Consider fraud. Fraud is analogous to materiality in its treatment by the courts. Like fraud, materiality does not lack for meaning in that people generally have a sense of what qualifies, but it has notoriously evaded definition for practical reasons. Loss wrote, “The courts have traditionally refused, whether at common-law deceit, or under securities laws, to define fraud with specificity.”¹¹ Similarly, materiality is grounded in law that specifies that its meaning must be defined in practice by the particular circumstances of the company. In this spirit, the accountant William Holmes encouraged us to “continue to discuss, dispute, dissect, deplore, and generally ‘look before and after and pine for what is not' in this matter of materiality,” concluding that the solution is to “widen our understanding and narrow our judgments—short of official standards.”¹² We take this to mean that rather than looking for an ultimate definition, we should instead focus on how to exercise judgment to determine what is material on a case-by-case basis.

Because materiality is a firm-specific social construct, it poses certain challenges for the integrated reporting movement. Since every board and management team protects a unique brand, what the corporation symbolizes for society is unique to each firm. The judgment of which limited matters are, in the language of the International Integrated Reporting Council (IIRC), “relevant and important,”¹³ is also firm-specific. As each firm can define its own materiality threshold within the boundaries of accepted and evolving standards, our understanding of materiality must encompass all integrated reporting firms. In “Westphalian”¹⁴ terms, materiality for the firm becomes materiality for its audience.

Regardless of whether or not its wishes are heeded, the involvement of an “audience” begs the question of to whom the firm is reporting. Recalling Searle, a social construct like materiality is a form of human agreement that involves the capacity of an institution, or more specifically its agents, to symbolize it. In the context of materiality for integrated reporting, one must ask, “Whom do the institution's agents address when they determine which issues are material, and which issues are not?”

Although providers of financial capital form the “direct audience”¹⁵—that is, the “users”—of an integrated report, the “indirect audience” of stakeholders also exerts pressure on the firm's selection of material issues. Firms are driven to engage with stakeholders because stakeholders wield varying degrees of influence on the providers of capital, and the implications of that influence are often too great to ignore. Consequently, when the firm decides what information is material, it must, for its own good, take into account the perspectives of stakeholders beyond those who provide financial capital.¹⁶ Furthermore, as Berle and Means¹⁷ have argued, society has granted corporations special privileges not given to individual persons, which suggests these same corporations have a moral, if not a civic, duty to think beyond profits to consider the good of society. Logically, corporations would then be morally obliged to not only “perform” in such a way, but to report back to society “material actions” beyond the profit-driven.

This does not mean, however, that issues that are “material” to stakeholders will be material to the firm. In the end, the corporation as represented by its board of directors will determine what is material for reporting purposes. In doing so, it chooses which stakeholders to address, how to obtain their input, and the relative weightings to assign to issues and audience members. The next chapter explores this in more detail in terms of the concept of a “Materiality Matrix” or, for reasons we will explain, what we prefer to call the “Sustainable Value Matrix.” Here we will briefly use the case of environmental reporting to introduce a more general discussion about how materiality has been treated in the worlds of financial and nonfinancial reporting, compare the two, and then give our view of this concept's relevance for integrated reporting.

Materiality in Environmental Reporting

Even in the context of financial reporting, information is not required to be a financial metric or even quantitative to qualify as material. To a limited extent, regulators have attempted to provide some guidance for reporting on “nonfinancial” environmental, social, and governance (ESG) issues, most recently on climate change or environmental issues more generally. In doing so, they illustrate the perils of regulatory intervention. Time will tell how regulators in European Union countries implement the legislation discussed in Chapter 3 and how central the concept of materiality will be in their efforts to do so.¹⁸

In January 2010, the Securities and Exchange Commision approved Commission Guidance Regarding Disclosure Related to Climate Change ¹⁹ regarding climate disclosures that might impact a company's operations. In its release, the Commission did not issue any new regulations. It simply stated, “This interpretive release is intended to remind companies of their obligations under existing federal securities laws and regulations to consider climate change and its consequences as they prepare disclosure documents to be filed with us and provided to investors.”²⁰ While noting that companies could voluntarily disclose climate-related issues in a sustainability report, the Commission also remarked, “Securities Act Rule 408 and Exchange Act Rule 12b-20 require a registrant to disclose, in addition to the information expressly required by Commission regulation, ‘such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.'”²¹ According to Ceres,²² this guidance has not been aggressively implemented by corporations or enforced by the SEC.²³

In its release, the Commission is clearly using the same “rational investor”²⁴ definition of materiality for climate change issues as for financial information when it reviews “the most pertinent non-financial statement disclosure rules”: description of business (Item 101 of Regulation S-K), legal proceedings (Item 103 of Regulation S-K), risk factors (Item 503 (c) of Regulation S-K), and management's discussion and analysis (Item 303 of Regulation S-K). The release then interpreted these general rules for disclosures related to climate change by discussing “some of the ways climate change may trigger disclosure by these rules and regulations.” Furthermore, the impact of legislation and regulation, international accords, indirect consequences of regulation or business trends, and physical impacts of climate change are given as examples.²⁵

The mostly negative reaction from the corporate community was very strong. A Forbes op-ed piece scathingly denigrated the SEC move as “an effort to remain relevant after Madoff,” forecasting that “while there are no completely new disclosure requirements here, the ‘interpretation' could impose a world of hurt and uncertainty on firms without benefiting (and likely even hurting) investors.”²⁶ As of 2013, an estimated 73% of publicly traded companies were still not providing disclosures on climate change.²⁷ Given that materiality is an entity-specific concept, it is impossible to know what percent regarded climate change as a material issue but chose to ignore the SEC's guidance and what percent simply did not see this as material to their business.

Comparing Different Definitions of Materiality

Materiality's centrality in disclosure means that any organization whose mission concerns disclosures by companies must address how it defines the term. Five organizations—AccountAbility, CDP, Global Reporting Initiative (GRI), the IIRC, and the Sustainability Accounting Standards Board (SASB)—are particularly important in framing the concept for integrated reporting. In contrast to regulators and accounting standard setters, these organizations are heavily, if not exclusively, focused on nonfinancial reporting. None has official support from the State in any country. Their definitions of materiality vary in terms of: (1) the audience targeted by the organization (shareholders vs. other stakeholders), (2) whether the determination of materiality depends on some degree of engagement with the audience, (3) whether other information is considered as relevant context, and (4) the organizational boundary of the disclosed information. Thus, the degree of difference between these organizations' definitions of materiality and those of regulatory bodies like the SEC (or regulatory-sanctioned bodies like the International Accounting Standards Board (IASB)) varies as well.

Showing wide variance, Table 5.1 summarizes the characteristics of the different definitions of materiality for these five organizations and the definition typical of regulatory bodies. CDP and SASB bear the closest resemblance to the regulatory definition. CDP hews closely to that of the IASB. SASB takes its definition directly from the SEC and U.S. case law, and thus is the only one of the five to imply the “total mix” of information.²⁸ For both, the reporting boundary is the company (SASB is focused only on companies, but CDP has a broader range of reporting entities which it does not explicitly reconcile with a definition of materiality created for public companies), the primary intended users are investors, and engagement is not part of the materiality determination process. However, this does not map seamlessly onto the regulatory definition. Both CDP and SASB see the act of reporting as a way to create positive social impact and improve a company's performance, emphasizing the importance of the long-term. None of these concerns are addressed in the regulatory definition.

Followed by AccountAbility's, GRI's definition of materiality is the furthest from the regulatory one. The latter does not match exactly with the regulatory definition on a single one of the eight characteristics. AccountAbility only matches on two: companies are the only preparing entity of interest and the company is the reporting boundary. The IIRC's definition is about halfway between the regulatory one and that of AccountAbility and GRI, falling somewhere between these definitions and those of CDP and SASB, as it is only focused on companies as a preparing entity but recognizes a larger boundary than the company itself. Although the primary users for the IIRC are providers of financial capital, the IIRC does not ground its definition in regulation, as do CDP and SASB. It also recognizes that other stakeholders can find an integrated report useful—most likely those who want a holistic view of the company's performance and prospects. Also, unlike the regulatory definition, the IIRC regards engagement as part of the materiality determination process. Like all other voluntary standard setters, it sees reporting as a way of improving company performance, having a positive impact on society, and encouraging a longer-term perspective on the part of the company.

Much like the “Conceptual Frameworks” published by Financial Accounting Standards Board (FASB) and the IASB that establish the basic principles and elements of financial reporting,²⁹ the IIRC's International <IR> Framework (<IR> Framework) establishes the essential architecture for an integrated report. The standards and definition of materiality for the financial information in the report will come from IASB, U.S. Generally Accepted Accounting Principles (GAAP), or a local country GAAP. Because SASB, like the IIRC, is focused on investors, its definition of materiality is closer to their needs than that of stakeholders. However, because its definition is so grounded in a U.S. context and anticipates stakeholder engagement by sector and industry rather than by company, an integrated report may contain information on nonfinancial performance that goes beyond SASB's standards. If a “reasonable investor” does not see a particular stakeholder's issue as relevant it would not clear the materiality hurdle by the SEC's, and hence SASB's, definition. But if, in the company's judgment, the issue important to this stakeholder can affect its ability to create value for shareholders over the long term, the company's performance on this issue should be included in its integrated report. GRI's G4 Guidelines will be useful here. The IIRC and GRI are also more entity-specific than SASB, which is broken down by sector and then industry. CDP can be seen as a “subject matter expert” on certain environmental issues. Some of the standards contained in the Climate Change Reporting Framework can be included in SASB's standards³⁰ and the G4 Guidelines.³¹

AccountAbility's role is to provide guidance on the materiality determination process itself. Its focus is neither a general framework, like the IIRC, nor making recommendations on specific items to be reported, like CDP, GRI, and SASB. Companies interested in starting the journey towards integrated reporting should start with the <IR> Framework, using the SASB standards relevant to their industry, and the Climate Change Reporting Framework if environmental issues are material to them. They can then expand the reporting boundary as they see necessary and, through a process of engagement and the G4 Guidelines, provide whatever additional information on nonfinancial performance is appropriate. Because this will likely still leave a great deal of information of interest to stakeholders out of the integrated report, this information should be made available in other ways, such as in an online sustainability report.

Audience

As discussed in Chapter 2, the direct audience for, or “user” of, an integrated report is the “providers of financial capital.” We also noted that while this typically signals providers of equity capital—investors—it should also include other types, like bondholders. In keeping with Holmes's call for a broad understanding of materiality, the <IR> Framework states in its section on “Materiality,” “An integrated report should disclose information about matters that substantively affect the organization's ability to create value over the short, medium, and long term.”³² In doing so, it implies a definition of materiality rather than explicitly stating one. Also in keeping with Holmes's call for narrowing judgment, the <IR> Framework goes on to discuss a four-step process to determine what information is material.

1. “Identifying relevant matters based on their value to affect value creation…,
2. Evaluating the importance of relevant matters in terms of their known or potential effect on value creation…
3. Prioritizing the matters based on their relative importance…
4. Determining the information to disclose about material matters.”³³

Narrowing down a long list to what ultimately passes the materiality threshold for inclusion in the integrated report demands the exercise of judgment to separate the “material” from the “immaterial.” The firm's ability to determine what is and is not material through its senior management and those involved in governance³⁴ symbolizes its social agency. Since a given factor's relevance must be weighted by its importance to the company, “Judgment is applied in determining the information to disclose about material matters.”³⁵ While the firm may undertake an involved stakeholder engagement process, it makes the ultimate decision as to what is material to its strategy. In doing so, it exercises judgment as to what is both important and relevant to the user audience, and of equally symbolic importance, what is not relevant or important enough to report.

According to the <IR> Framework, stakeholders are the indirect audience of an integrated report. “An integrated report benefits all stakeholders interested in an organization's ability to create value over time, including employees, customers, suppliers, business partners, local communities, legislators, regulators and policy-makers,”³⁶ it reads. Although not the direct audience, stakeholders can both influence what a firm determines is material (to the extent that their interests and actions affect providers of financial capital) and be members of the direct audience of report users (to the extent they are interested in a company's ability to create value over time). This is not the same as being interested in what the company is doing about issues that are material to them even if they are not determined to be material by the company.

More generally, it is common today for companies practicing integrated and/or sustainability reporting to distinguish between importance (or materiality) to the company and importance (or materiality) to society. This distinction is sometimes expressed through a “materiality matrix,” a social construct whose meaning comes as much from how it is put together as its content. Too often, a misunderstanding about the difference between the entity and society levels of analysis muddles thinking on this subject.

Because we do not view society as an entity per se, and because materiality is an entity-specific concept, materiality cannot be defined for society. Society is a reified concept based on the agglomeration of entities that have more or less defined identities, such as NGOs, political organizations, employees, unions, communities, religious and civil society organizations, formal and informal networks, companies, and providers of financial capital. The different constituent parts of society which are entities can have their own views of materiality and how to determine it, just as a company can, does, and must. The firm can form its own view of what a stakeholder regards as material based on substantial input from that stakeholder or virtually none at all. However, the firm cannot determine what is material for the stakeholder any more than a stakeholder can determine what is material for the firm. By the same reasoning, one could also claim that the firm cannot determine what is material to the reasonable investor, to the providers of financial capital, and to the rest of the direct audience. The difference is that the law requires the firm to make this judgment regarding the “reasonable investor,” but it does not address whether such a materiality determination is valid from a social construct point of view; firms are simply required to make this materiality determination.

While the fact that neither the firm nor its stakeholders can determine materiality for entities besides themselves seems obvious, the consequences of this distinction are enormous and often overlooked. Any attempt to identify what is material using an approach based on distinctions between what is “material to the company” and “material to society” confounds two very different concepts. The first is indeed materiality. The second is a firm's perception of what is important to society. Since society is not an entity with an identity, what the firm has really determined is not what is “material to society.” Rather, it is reporting its own perception of what it thinks is important to society through a social construct based on an aggregation of its views about what is material to the stakeholders selected by the firm. How these stakeholders are chosen (and ignored), how their views are assessed, and the weightings the firm assigns to them in the aggregation function are part of the social construction process. The data modeling concept of “cardinality” applies here. As a social construct, the firm defines materiality in terms of its “one-to-one” entity relationship between the firm and the “providers of financial capital.” Each party in this relationship is a defined entity, more or less. Between the firm and society, there exists a “one-to-many” relationship. “Many” is not an entity.

Because the company's stamp on “importance to society” is as strong as it is on “importance to the company,” any stakeholder can argue that the company “did not get it right” in its determination of importance to society and, in doing so, cast doubt on the legitimacy of the company's assessment. This reflects the fundamental misunderstanding described in the previous paragraph. The firm is not—and should not think it is—providing an objective view of materiality from a stakeholder's, let alone society's, perspective. It is socially constructing its own view of what it thinks those stakeholders' views are. Stakeholders should recognize this for what it is, and they can attempt to change the company's perception if they do not agree with it.

In the same way that the firm cannot determine materiality for individual stakeholders, it cannot determine materiality for other firms—another indirect audience for an integrated report. In addition to suppliers and customers, other firms include competitors and potential competitors (who want to benchmark their performance against the firm's), potential acquirers (both strategic and financial buyers like private equity firms), and alliance or joint venture partners. While companies often include customers and suppliers in determining “importance to society,” they almost never include other companies, thus making them unimportant in a discussion about materiality.

Governance

Aside from AccountAbility, the IIRC places more importance on the role of corporate governance in determining materiality than do the other NGOs concerned with corporate reporting. In a background paper for its <IR> Framework, the IIRC stated:

Another unique feature of materiality for <IR> purposes is that the definition emphasizes the involvement of senior management and those charged with governance in the materiality determination process in order for the organization to determine how best to disclose its unique value creation story in a meaningful and transparent way.³⁷

In the spirit of “narrowing of judgment,” we think it possible to be more specific about the role of the board in determining materiality. In fact, we will argue that the responsibility for making this determination ultimately lies with the board and that, in order to fulfill its fiduciary responsibility, it must do so. However, in order to prescribe a more specific role for the board and to outline board tasks in the annual integrated reporting cycle, we must first review its basic, if often mischaracterized, role as an actor in the social construct of materiality.

In one of the most important business books of all time,³⁸ The Modern Corporation and Private Property,³⁹ Adolf Berle and Gardiner Means identified three broad privileges granted to corporations by the State:

1. The ability to limit liability, or to socialize losses,⁴⁰ while privatizing profits, thus attracting risk capital.⁴¹
2. The ability of corporations to own other corporations, allowing for concentration of control disproportionate to share of risk capital.⁴²
3. The separation of ownership rights from control rights, enabling freely tradable shares.⁴³

In summary, “The property owner who invests in a modern corporation so far surrenders his wealth to those in control of the corporation that he has exchanged the position of independent owner for one in which he may become merely recipient of the wages of capital…[Such owners] have surrendered the right that the corporation should be operated in their sole interest.”⁴⁴ As noted at the beginning of this chapter, since society has granted corporations these special privileges, corporations have a moral, if not a civic, duty to think not only of profits, but also of the good of society.⁴⁵ This underpins the duty of corporations to not just “perform,” but also to “report” material actions back to society beyond those that are profit-related.

The duty of a corporation to take society's interest into account in exchange for these special privileges is held, in trust, by the board of directors. Through the corporate privilege of personhood that is granted by society, a corporation arrives at its own legal identity, separate from its shareholders, directors, managers, employees, and stakeholders. As such, it has the capacity to survive many generations. In his book Firm Commitment, Professor Colin Mayer of Oxford University noted that the corporation's current decisions will have an impact long after the tenure of its current management and directors has expired, and, that consequently, the board is the appropriate trustee of the firm's intergenerational commitment.⁴⁶ This implies that director judgment must be informed by a keen sense of the social context within which the corporation is operating, further informing their oversight of the management team in formulating and implementing the company's strategy. It also implies that the board is responsible for taking a long-term view and ensuring that management is doing so as well to the extent it deems necessary.

In its 2003 version of Redefining Materiality, AccountAbility specifically stated in the section titled “Governing Materiality”⁴⁷ that each firm's board should define materiality within that firm's own context⁴⁸ and not that of its peers. Because the board's fiduciary responsibility is to the corporation itself rather than any particular stakeholder group—even investors⁴⁹—it needs to assess how various stakeholders' interests affect the corporation. Doing so requires understanding the issues that are material to each stakeholder and reflecting on how this shapes what is material for the firm itself. We suggest adding a prior step to the four-step process recommended by the IIRC for determining materiality: “Identify stakeholders relevant to the corporation, their interests (including where they conflict), and the relative weight attached to each.”

Our recommended first step is rarely done with any degree of rigor for two reasons. The first is the prevailing ideology that the fiduciary duty of directors requires them to place primacy on shareholders' interests. As we have noted, this is indeed ideology, not law, at least in the very Anglo-Saxon-influenced United States.⁵⁰ The second is that corporations and their boards are reluctant to define the relative importance of different members of the audience with great specificity. It is easier to say something general like, “We are committed to delivering excellent returns for our shareholders and we firmly believe that addressing stakeholders' interests further enables us to do so.” While this sounds “nice” and is consistent with the emerging rhetoric in support of the “business case for sustainability,” it ignores the fact that trade-offs often exist, particularly in the short term.⁵¹ Since corporations often complain about the pressures for short-term performance imposed on them by the market, it is hard to reconcile this complaint with the breezy assertion of “doing well by doing good.” Moreover, not only are there trade-offs between providers of financial capital and other stakeholders, there are trade-offs between one type of provider of financial capital and another (e.g., equity vs. debt), as well as between different stakeholders (e.g., those focused on an environmental issue vs. those focused on a social issue).

Today the use of a “materiality matrix” by some companies to communicate their view about the relative importance of different issues begs the question of just how differences in importance are determined. What all members of the audience want to know is the underlying weighting given to each stakeholder group and the company's view of how important an issue is to each group. Since materiality is binary and based on judgment, judgment must first be exercised in identifying which members of the audience really matter. Doing so requires the courage to recognize that some stakeholders will disagree with this judgment, perhaps vocally so. Attempting to evade this conflict through conciliatory vagaries like “we care about all of our stakeholders” not only clouds the company's capacity to determine its material issues, but it also inhibits the company's ability to benefit from the transformation function of corporate reporting.⁵² Transformation requires stakeholder engagement and, as with every resource allocation issue, there are limits to the resources that can be devoted to this.

Determining the relative importance of different providers of financial capital and different stakeholders is ultimately a responsibility of the board. What does this mean in operational terms? We suggest that annually the board issue, as part of the company's integrated report, a forward-looking “Statement of Significant Audiences and Materiality.” This statement will inform management, providers of financial capital, and all other stakeholders of the audiences the board believes are important to the survival of the corporation. While management can play a significant role in preparing this statement, it is ultimately a statement of the board, somewhat analogous to the annual financial audit. While management is deeply involved in the audit and, in the United States, the chief executive officer and chief financial officer must personally sign off on the adequacy of a company's internal control systems, it is the Audit Committee of the board that selects and engages the audit firm and signs off on the scope of the audit. The difference is that the audit statement is ultimately a responsibility of the board—not management.⁵³

Materiality for Integrated Reporting

Evidence shows that the investor audience has a significant latent appetite for integrated reporting. The Statement of Significant Audiences and Materiality, when combined with the new tools we outline in the next chapter, may be a vehicle that accelerates the adoption of integrated reporting by this user audience. According to a 2014 Ernst & Young survey on “Tomorrow's Investment Rules,” institutional investors want a clearer view of what is material and want it directly from the company.

Materiality is a key concept that emerged from this survey. Investors were more likely to value information which came directly from the company itself rather than from third-party sources. In addition, among those that never consider ESG information in their decision-making process, the main reason for rejecting it was that they felt it was not material.⁵⁴

When the board is very clear in its communication of what is material and what is not, and which audiences it feels are significant (and which are not), investors gain relevant guidance on how the board judges importance and its ability to exercise this judgment. Investors are looking for this guidance. The board's Statement of Significant Audiences and Materiality is a new venue through which the board can strengthen the social construction attribute of institutional symbolism. This symbolism, which makes clear what the company cares about and what it does not, is the foundation for the verity of the company's claims about its commitment to “sustainability.” It is an important way in which the company avoids the charge of “greenwashing,” but the company must also back up its claims about the audience and issues that are material and so included in their integrated report, with genuine resource commitments and stakeholder engagement, as discussed in the next chapter.

The board itself will determine the process for producing this statement using whatever tools and guidelines it chooses, while heeding the IIRC's guidance on concision in materiality. Selecting 10 audiences to include in the statement communicates more information than selecting 20, and selecting 5 audiences transmits more information than selecting 10. We suggest the following resources to aid the board in drafting its Statement of Significant Audiences and Materiality:

• The IIRC has established a process for determining materiality, which we have augmented as discussed above.
• SASB's rigorous, sector-specific, evidence-based standards are a good starting point for identifying ESG issues relevant to investors.
• GRI offers similar guidance regarding issues for stakeholders, and the board should determine which are material for the corporation itself.
• CDP provides the key perfomance indicators for reporting on climate, water, and forest issues that the board deems material.

In the previous chapter, we discussed more generally the way that the efforts of these four organizations are complementing each other in support of the integrated reporting movement. In the next chapter, we will discuss how the board's “Statement of Significant Audiences and Materiality” serves as the foundation for a management tool we call the “Sustainable Value Matrix.”