Abstract
This paper first examines the concept of materiality in regulations on corporate reporting. The
focus is Europe, including international standards as endorsed in Europe. The paper traces the
concept of materiality from its first appearances in the 1970s (in EU Directives and UK
accounting standards) through to the recent international and EU sustainability standards.
The texts of these documents are analysed to reveal how the importance and definition of
materiality has varied over time. In some documents, materiality is absent but in others it is
one of only three or four key concepts. The scope of materiality had been gradually
narrowed in recent years in IFRS, but that was reversed by the concept of impact
materiality in GRI standards and then the double materiality of the EU’s sustainability
standards. The paper suggests that the concept of impact materiality is unclear. It explains
how double materiality entails more disclosure than single. The ambiguity of the concepts
is illustrated by examining the changing signifiers used in translations of regulations and
standards. The paper then finds that researchers have not taken sufficient account of
materiality when scoring corporate compliance with disclosure requirements. Policy
recommendations for regulators and researchers follow.
Introduction
The recent publication of requirements for companies to make sustainability disclosures is the
greatest change to regulated corporate reporting since the widespread adoption of IFRS in
It has led to debate about the differences between the demands of competing sets of guide
lines and regulations, such as those of the International Sustainability Standards Board (ISSB),
the Global Reporting Initiative (GRI) and the EU’s European Sustainability Reporting Standards
(ESRS). A key difference concerns the approach to defining materiality. The ISSB standards
require disclosure when an item has ‘financial materiality’, the GRI refer to ‘impact materiality’,
and the ESRS require disclosure if either type of materiality applies (commonly called ‘double
materiality’). However, whether this difference will be of practical importance is open to ques
tion.
2
Because some companies have to comply with more than one set of these standards at the
level of the group or of a subsidiary,
3
a major area of debate is ‘interoperability’.
These recent developments were the spur to conducting this paper’s long-run analysis of
the place of materiality in corporate reporting. The paper first investigates the evolution of mate
riality across a 55-year period. The focus is Europe, but that includes the international standards
as endorsed for application in the EU and in the UK, and it includes the influence of US docu
ments. To understand the development of the EU’s sustainability standards, it is also necessary to
examine the GRI’s standards even though they are not generally required to be applied in Europe.
Because different language versions of the regulations are the legal ones in various jurisdictions,
the next logical step is to examine the translations to see if meaning has been lost. These inves
tigations should be of interest to standard-setters, translators, preparers, auditors, users and moni
toring/enforcement agencies. Working after all those interested parties, researchers have studied
corporate reports to assess compliance with regulations. This has mostly concerned disclosure
requirements, for which taking proper account of materiality has been the central problem.
This is a conceptual paper. Its investigations can be expressed as the following four related
research questions:
RQ1: How has the definition and meaning of materiality in financial reporting changed
over the decades?
RQ2: Is the definition of impact materiality clear, and in what ways does double materiality
require more disclosure than financial materiality?
RQ3: Do the translations (in laws and standards) of the signifiers related to materiality
cause extra problems in interpreting the concept?
RQ4: Has compliance research properly taken account of materiality, and what lessons
does this provide for a new field of research into compliance with sustainability disclosure
requirements?
To answer the first three questions, I first discuss the relevant prior research at the beginning of
each section. I then examine the exact wordings of the regulatory documents, analysing how they
have changed over time and the implications for practice. My scope includes the official trans
lations of the documents. The final question above is investigated by analysing published
research, drawing on the answers to the previous questions. The paper fits into this journal’s
long-run tradition of conceptual literature about regulation, which started in its first issue
(Gibbs 1970) and has continued through to more recent papers such as Detzen (2016) and
Fontes et al. (2024).