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Sustainable Investing Glossary

Materiality

The relevance of a sustainability factor to a company’s financial performance.

Financially material ESG factors are factors that could have a significant impact – both positive and negative – on a company’s business model and value drivers, such as revenue growth, margins, required capital and risk. The material factors differ from one sector to another. Examples of factors that can be material are supply chain management, environmental policy, worker health and safety, and corporate governance. 

For sustainability to translate into financial performance, it must have an impact on either the amount of cash flow generated by the company, or the cost of external financing to the company (the weighted average cost of capital).

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