Assessing materiality of sustainability issues and their financial impact from an investor perspective. A study in analyzing materiality as a sector-specific issue, applied to the Swedish Textile and Apparel Industry.

Abstract

Background & Problem: Based on the assumption that sustainability efforts hinder the objective of profit maximization, companies have been thought to lack incentive for conducting their operations in a sustainable manner. There is however an increasing amount of stakeholder demand for corporate sustainability. The concept of shared value has highlighted the possibility of increasing, and more importantly sustaining, profit through better sustainability performance. Considering sector-specificity as being a prerequisite for materiality of sustainability factors, IASB definitions of materiality and primary users of reporting were taken into account when creating the aim of the study. Aim of Study: This thesis aims to evaluate the concept of materiality of sustainability factors and whether integrating financial value creation in the sustainability analysis can be considered material for an investor. Delimitations: This thesis will analyze the concept of materiality from the perspective of investors, not all stakeholders. This study does not aim to provide a conclusive statement on materiality, but has as its objective to discuss the concept of within sustainability investment analysis. Methodology: Seeing as this study aims to evaluate the concept of materiality, an accounting principle defined by several different sources in an abstract manner, a qualitative research approach was deemed to enable a discussion on the subject. The collection of empirical data consisted of gathering public information as well as conducting seven midlength interviews. The analysis was a two-step process, with the first part being a prerequisite for the second part. Analysis & Conclusions: The analysis showed great support for sector-specific materiality and confirmed that materiality is important to investors when selecting variables to analyze. The process of assessing materiality, and how well the company reports on issues deemed as material was found to be more important than extent of reporting. The reporting of two out of three studied companies does not appear to be sufficient in this regard. Argument was found for more consolidated approaches to sustainability and financial reporting, as well as for more standardized approaches to materiality. Links between financial value creation and sustainability performance were identified concerning governance, risks and opportunities. Suggestions on Further Research: Standardization of sector-specific materiality on sustainability factors. Study on private investors’ opinion on the same subject. Taking more aspects of the companies into account when studying materiality from the investor perspective. Studying the company process of materiality analysis. Assessing the concept of materiality for other stakeholders, particularly creditors. Analyzing sustainability 3 of business models. Replicating this study in 2018 or 2019 to see if the Law of Sustainability reporting has any effects on the concept of materiality within sustainability reporting.