Materiality assessment: the case of Latin American listed companies

Abstract

PurposeThis paper aims to propose a measurement of the materiality of environmental, social and governance information (ESG) reported by listed companies belonging to sensitive industries in Colombia, Mexico, Brazil, Chile and Argentina. This analysis is carried out from the insights of stakeholder theory, legitimacy theory and institutional theory. The research questions addressed are: What type of information is considered as material by Latin American companies? Does this information respond to the environmental and social issues within the context of Latin American companies and the needs of their stakeholders?Design/methodology/approachA materiality index is developed from principal component analysis and factor analysis, which are multivariate analysis statistical techniques used in various fields to develop indices. The designed index examines materiality in the sustainability reports of 65 companies for 2017 and 67 companies for 2018. These firms belong to the energy, mining, chemical, construction, construction materials and public services industries in Colombia, Mexico, Chile, Argentina and Brazil.FindingsThe results show medium-high materiality indices, mostly in Chilean, Mexican and Colombian companies. In addition, issues such as water management, climate change and occupational health and safety are particularly interesting for companies. For the two years studied and from the perspective of material aspects for the company and its stakeholders, energy, mining and utilities (drinking water and sewage) sectors obtained the highest scores. This shows that the disclosure of ESG information is higher in industries related to the exploitation of natural resources that cause adverse effects on the environment such as extractive industries. Both the analysis presented in this paper and the materiality measurement developed, allow social responsibility managers to have a standard on the level of importance allotted to the different topics disclosed in sustainability reports. Additionally, this study provides a perspective of the material issues recognized by sensitive industries with great environmental impact. Similarly, an analysis of the issues considered material by stakeholders is provided. This allows such issues to be compared, identifying similarities and differences among the issues regarded as material by a company and its stakeholders.Practical implicationsThe paper opens the debate is open as to whether the information disclosed response to the needs of stakeholders or whether, on the contrary, the materiality analysis is a process that emerges simply from the interests of the company. These demands for qualitative and field research to complement quantitative studies such as this one to research the stakeholders’ engagement processes in context.Social implicationsThe paper’s purpose a challenge for future research is to strengthen the use of various methodologies that allow knowing the participation processes in the definition of materiality in the ESG information and the companies’ engagement with stakeholders. This stimulates research in the region, which is still in its infancy.Originality/valueThe international literature contains few studies related to the assessment of materiality for sustainability reporting. So this paper contributes proposes measurement of materiality for ESG information.