The concept of materiality is a bedrock feature of American securities law and regulation. It informs the way investors think, talk, and transact, the way lawyers advise their clients, and the way legislators and regulators draft and enforce federal mandates. The working definition of materiality in the United States, which has served corporate America well for nearly nine decades, now finds itself facing significant pressures from a variety of sources. The European Union, the World Economic Forum, and other stakeholder- and EESG-oriented organizations are advocating for a broader definition and developing concepts of expanded materiality that go far beyond the traditional American approach in ways that threaten to undermine the usefulness of materiality as a guiding principle for disclosure.

In the current debate over materiality, two issues should remain distinct: the importance of stakeholder governance and EESG on the one hand, and the question of redefining the standard of materiality from a securities law and market perspective on the other. Institutional investors in the United States are increasingly focused on stakeholder governance and EESG issues, and corporate disclosure on these topics can and should be addressed within the American framework of materiality. If disclosure of immaterial information is required for non-financial reasons, it should be acknowledged as such and not swept into the concept of materiality. There are examples of such requirements under U.S. law, but though these disclosures are mandated, the information provided is not considered “material.” In an article forthcoming in May, we will address the issues that would arise in connection with SEC-mandated EESG disclosures.

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