Materiality assessment is an art, not a science: The inherent challenges in selecting ESG topics for sustainability reports

Transparency is always seen as an important determinant for business success and avoid greenwashing. Responding to the call to be more transparent about sustainability activities, firms were seen to report on every aspect of their non-financial performance, leading to reports of over 500 pages. The reporting standards-setters thus started to place emphasis on concise and comprehensive information on the most relevant topics. The materiality assessment was introduced to support firms in selecting the sustainability topics that are material. However, a lack of consensus between standard setters on how to conduct this assessment has led to a diversity of methodologies, making the results hard to interpret and compare. Furthermore, the current standards provide little guidance in handling the inherent tensions of sustainability that surface during a materiality assessment. In our study, we investigated the methodologies behind materiality assessments by analyzing over 400 corporate reports between 2017-2019 and interviewing reporting managers in 20 large multinationals. In this article, we show how the methodologies of their materiality assessments reflect how firms handle the sustainability tensions. We end the article with a reflection on the role of standard-setters on the road to transparent reporting materiality decisions.