What is Materiality?

"Materiality" is a term used to describe the relative importance of an issue or concern. In the context of environmental, social and governance (ESG) investing, materiality refers to how likely it is that an ESG issue will have a financial impact on a company or investment.

In order to make informed investment decisions, it is important for investors to understand which ESG issues are most likely to be material for the companies or investments in question.

Some ESG issues, such as climate change, have become more important and material in recent years as awareness of the issue has grown and its potential financial impacts have become better understood. Other ESG issues, such as employee relations, have been material for companies for many years.

Investors should also be aware that different companies or investments can have different levels of exposure to different ESG issues. For example, a company that is heavily reliant on fossil fuels for its business operations is likely to be more exposed to the financial risks of climate change than a company with a diversified business model.

When evaluating an investment, it is important to consider both the materiality of the ESG issue and the company's or investment's exposure to that issue.

On the company side of things, materiality simply refers to the ESG standards that are most crucial to uphold in your business. For example at Enertiv, our focus on reducing energy consumption for corporate real estate is one of our most material ESG goals.

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