Materiality as a Double-Edged Sword: Real effects of SASB Sustainability Topics
We examine the real impacts of the Sustainability Accounting Standards Board (SASB) materiality classifications, which identify sustainability topics as either relevant or not relevant for investors. By leveraging the staggered release of the classifications, we analyze how shocks to sustainability disclosure prompt changes in sustainability performance. We base our measure of sustainability performance on environmental, social, and governance incidents. Our key finding is that sustainability-related incidents decrease following the release of SASB classifications indicating relevant topics for investors. Conversely, sustainability-related incidents increase for classifications indicating non-relevant topics. These divergent changes in incidents are mirrored by adjustments in firms’ internal sustainability policies following the introduction of the SASB classifications. In further analysis, we discover that the mechanisms of higher exposure to the classifications from external sources and increased shareholder pressure amplify these changes. Sustainability-linked executive compensation serves as another mechanism, incentivizing managers to address material sustainability topics but not immaterial topics. Our study carries policy implications, demonstrating that while accounting standards focusing on topics intended to benefit investors can drive positive changes, they may also inadvertently discourage firms from making progress on other sustainability topics. Stakeholders affected by this lack of attention bear the negative consequences.