trends and future of sustainable development - TransEco

The next discrepancy we encounter is that it is unclear whether the materiality standard is based oninformation that affects or would have affected the voting decision of a reasonable shareholder or oninformation that affects or would have affected the investment decision of a reasonable investor. It isquite obvious that there are significant differences between the materiality of information in the votingand the trading context (Oesterle, 2011). Voting is a collective act of the shareholders, thus an actualvoting outcome is not changed on basis of certain information unless the majority of the shareholdershave regarded the information as important in the total mix of information. In the trading context, if aninvestor regarded certain information as important might have an influence on his individual investmentdecision. Accordingly, the test of materiality in the voting context might be more stringent than in thetrading context (Oesterle, 2011). This difference might be rather significant in relation to the materialityof CSR information, being seldom relevant in voting, but, at least for some investors, being more likelyrelevant for investment decisions.As set forth above, the Supreme Court extended materiality from voting decisions to tradingdecisions, and the subsequent case law has endorsed this extension (Oesterle, 2011). Accordingly, thesame definition applies to both contexts. This could lead to the above discussed discrepancy due to thedifferences of the two contexts and might mean that there is actually not one objective materialitystandard, but more tailored and subjective materiality standards. The SEC and the judicial decisionsseem to tackle this problem by viewing the reasonable investor or reasonable shareholder standard asbeing concerned with the needs and concerns of an ‘average investor’ and an ‘average shareholder’(Redwood, 1992). Moreover, average investors seem to be perceived by the SEC as conservative traders(SEC v. Texas Gulf Sulphur Co. [1968] 401 F.2d 833, 849). And although it has been suggested bydifferent authors that CSR is beneficial for a company’s profitability (van Beurden and Gössling, 2008),this relationship is similarly disputed (Jones et al., 2008). Therefore, it is likely that a conservativereasonable investor would only be interested in CSR information if it had direct impact on the financialsituation of the company.The concepts of reasonable investor and shareholder are constantly changing (Redwood, 1992).Thus, it should be possible to change the materiality standard as the needs and concerns of reasonableinvestors and shareholders change (Sachs, 2006). Such a shift has occurred in the SEC’s view on thereasonable investor in respect of the materiality of Corporate Governance information (Cox et al., 2009).It appears to be possible that in time a wider range of CSR related information will be regarded asmaterial by the SEC as these issues become important for a majority of the investors and shareholders.However, there is no indication on how many investors need to consider the information important(Redwood, 1992). Since 1995, socially responsible investment grew from USD 639 billion (SocialInvestment Forum, 1995) to USD 3,07 trillion by 2010 in the US alone (Social Investment Forum, 2010).This is a significant growth, but socially responsible investment represents only 12,2 percent of the USmarket of professionally managed investments (Social Investment Forum, 2010). At this point it is hardto argue that all CSR information may be regarded as material, since only one in eight investors wouldconsider it important.It has to be noted that, as a result of the above outlined practice, the SEC and the entire corporatedisclosure system has been under constant criticism. Good examples might be the demand for enhanceddisclosure of certain Corporate Governance matters (Redwood, 1992) and the demand for disclosureabout the companies’ business ties to unstable and internationally sanctioned countries (Westbrook,391