Materiality

Whether an item is large or relevant enough to change a decision or a valuation. In ESG analysis, which issues are likely to affect a company's cash flows, risk or cost of capital in its particular industry.

Where you will meet it

Materiality appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain the ways ESG risks and ESG-driven investment opportunities can be found and assessed
  CFA Level II · Corporate Finance

  “Start with materiality: which environmental, social and governance issues are likely to affect a company's cash flows, risk or cost of capital in its industry.”

• Explain how a proposed corporate restructuring is first assessed
  CFA Level II · Corporate Finance

  “The trap is measuring materiality against the target rather than the issuer.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with M · Glossary