Truvalue Labs’ Research on Dynamic Materiality™ Sheds New Light on Financial Implications of ESG

Source: Truvalue Labs, 27 January 2020

Truvalue LabsTM, the leading provider of AI-driven environmental, social and governance (ESG) data, introduced the patent-pending concept of Dynamic Materiality, indicating that every company, industry and sector has a unique materiality signature that evolves over time based on factors like emerging technologies and new regulations. Truvalue Labs’ research, based on its real-time analysis of sustainability factors, indicates that ESG materiality is driven by stakeholders’ perspectives regarding individual companies, in addition to factors related to the industry and sector as a whole.

In its latest paper, Dynamic MaterialityTM: Measuring What Matters, Truvalue Labs analyzed millions of data points on sustainability issues for companies in the Russell 3000 over the past 12 years and found that its historical data was predictive of the Sustainability Accounting Standards Board’s (SASB) Materiality Map published in the 2018 Codified Standards. These findings suggest that Truvalue Labs’ timely data serves as a proxy and leading indicator for materiality. The paper also explores how technology is giving all stakeholders, not just shareholders, more voice in influencing what companies must consider to be material issues.

BlackRock CEO Larry Fink’s recent letter to company CEOs and the World Economic Forum’s focus on stakeholder capitalism at Davos highlights the timeliness of this research.

“It is generally acknowledged that material ESG issues by industry can change over time for a variety of reasons,” said Professor Robert Eccles of Saïd Business School, Oxford University. “This is the first paper to present a rigorous empirical analysis to demonstrate that this is indeed the case. Another important insight is that there are three core materiality issues – Greenhouse Gas Emissions, Labor Practices and Business Ethics – that have been especially important for the past 10 years because of their system-level effects.”

“Given how central materiality is to ESG investing and fiduciary duty, it is critical to understand the mechanisms by which ESG factors impact the operational and financial performance of companies,” said Andre Shepley, Head of Fundamental Research at Truvalue Labs. “In this context, Truvalue Labs’ data provides insight into material issues as they emerge, enabling investors to make more informed decisions and engage more effectively with companies.”

Download the whitepaper (on request)