trends and future of sustainable development - TransEco

and performance (Directive 2003/51/EC of the European Parliament and of the Council of 18 June2003: Article 1(14)(a) and Article 2(10)(a)). This condition resembles the materiality threshold set by theUS regime in order to avoid the disclosure of unnecessarily detailed or irrelevant information (SEC,2003). However, it is unclear whether it can be stated that the EU regime also operates with the notionof materiality. An indication of this is found in the fact that the Recommendation expressly refers to theterm materiality and recommends the disclosure of environmental issues only to the extent that they arematerial to the financial performance or the financial position of the company (CommissionRecommendation 2001/453/EC of 30 May 2001, Annex 4(1)). Additionally the notion of materiality isnot alien to EU law, as the Market Abuse Directive defines materiality or price-sensitivity of information(Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003, Article 1(1)),although for the purpose of insider trading. Thus, it might be stated that the EU regime operates with asimilar condition to that of the materiality threshold in the US.3. Analysis of the concept of materialityAccording to the above unfolded characteristics of the US and the EU disclosure regimes it might bestated that materiality or a similar concept plays a significant role in distinguishing between CSR relatedinformation that is mandatory to disclose and other CSR related information, the disclosure of which isnot mandatory. Thus, the concept of materiality seems to be of utmost importance in both regimes, sinceit acts as a ‘valve’ protecting investors, shareholders and other stakeholders from being under informed,on the one hand, or overloaded by information, on the other hand. At the same time, it is a widelyrecognized fact that the doctrine of materiality is a rather ambiguous one (Westbrook, 2011). Thus,providing a practically applicable definition of materiality is not an easy task, especially if non-financialinformation is at question. This is underpinned by the fact that the US disclosure regime is stillstruggling with the determination thereof since the ‘70s (Redwood, 1992) and that the Global ReportingInitiative project devotes a full working group at defining materiality for the purpose of sustainabilityreporting (GRI, 2011). Thus, it has to be further analyzed where the borderline between material andimmaterial CSR related information lies under the US and the EU disclosure systems. The similaritiesand differences between the two regimes are also discussed with the aim of exploring what lessons theUS regime has for its EU counterpart.3.1. Materiality rules in the US with special attention to CSR information3.1.1. The development of the concept of materialityUnder the US regime the assessment of materiality is a normative judgment which is a mixed question oflaw and fact (Cox et al., 1997), since the assessment of materiality is highly dependent on thecircumstances of individual cases (Hazen, 1995). In one of the early cases, material information wasdefined as information that a reasonable investor might consider important (Mills v. Electric Auto-LiteCo. [1970] 396 U.S. 375). By such a broad definition the US Supreme Court has significantly “muddiedthe waters” (Cox et al., 1997) of the US disclosure regime, since according to this the reportingcompanies, in theory, had to make an assessment of what a reasonable investor considers important.389