By Carol Nolan Drake, J.D., Skytop Contributor, July 9, 2021

Carol is the CEO and Founder of Carlow Consulting, LLC, a company she created in January 2017, following a senior position with an institutional investor handling corporate governance and external relations. Before this role, Carol served in leadership positions for three Ohio governors, with appointments to the Cabinet and several boards and commissions, including as a trustee for a public pension fund.

As an attorney, Carol worked in private practice and as an assistant attorney for the city of Columbus. She served five years on the Board of the Council of Institutional Investors (CII). Carol was the co-chair of the ICGN Shareholder Responsibilities Committee (SHREC) under which the Committee revised the Diversity and Share Lending Guidelines. 

Carol has published several articles on corporate governance, ESG and diversity, including chapters in The Handbook of Board Governance, Second Edition. She also writes about federal policy and the intersection between effective company reporting and investor expectations. Carol is a frequent speaker on governance, diversity initiatives and investor stewardship. She holds a law degree from the Claude Petit College of Law.


In downtown Columbus, the Supreme Court of Ohio presides in a historic building called the Ohio Judicial Center. Carved into one of the exterior panels is a quote by Ohio’s President Rutherford B. Hayes, who said in 1881, “The whole fabric of society rests upon labor.” What President Hayes referred to as “labor” then was the work performed by people to support their families and contribute to society. Almost 140 years later, his words remain strikingly relevant.

News stories written since the declaration of the COVID-19 emergency have reported how we, as a society, have come to depend on essential workers. From the beginning of the global pandemic, first responders, paramedics, doctors and nurses labored to care for us, many with limited supplies of personal protective equipment (PPE). Teachers and school employees united together to support students’ new virtual lives and deliver educational lessons and resources to children and families. 

The gig economy workers, i.e., the food delivery and car sharing drivers, the employees fulfilling our online orders, workers in essential factories and businesses, and grocery store employees became lifelines to our communities as we sheltered in place. The contactless delivery model became a pattern for our collective existence. We learned in lockdown that their safety and protection from the virus were essential to our survival. The recognition that we were all in this together became a uniting thread connecting companies, investors, employees, and customers.

Global Investors Altered Their ESG Focus

The pandemic escalated the attention from investors who generally sought information from companies on Governance and Environmental factors that could be material. By mid-2020, with the rise in the Social factor, the attention on the “S” was altered, no longer considered after the “G” or “E.”  A different kind of “material” became essential as masks, gloves and shields, or other personal protective equipment became a requirement for employees that could not “work from home” (WFH). Companies were pressed to provide answers on how they were handling the new COVID-19 restrictions, providing safe environments for employees and customers, and dealing with major disruption in their business models.  

One of the questions from the “Great Pause,” as I call it, is whether the “S” or Social factor, for example, diversity and inclusion in the workforce or cultural issues that could impact a company’s reputation and/or returns, should be a consideration in a company’s assessment of “materiality” for disclosure to investors?

Materiality is in Fashion Again

In the past few months, several articles have been published on the definition or concept of materiality. This caught my attention because materiality is not generally considered a contentious topic. A well-recognized standard of materiality was set over 45 years ago by the U.S. Supreme Court in the 1975 case, TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438. 

This type of materiality has been acknowledged by the Sustainability Accounting Standards Board (SASB), SASB, the Task Force on Climate-Related Financial Disclosures (TCFD), and Global Reporting Initiative (GRI). The TCFD recommendations on climate-related financial disclosures are “widely adoptable and applicable to organizations across sectors and jurisdictions.” Recommendations | Task Force on Climate-Related Financial Disclosures ( GRI issued a recent paper on the double materiality concept in which a key finding showed that “reporting material sustainable development issues can enhance financial performance, improve stakeholder engagement and enable more robust disclosure.”

SASB measures financially material issues as those “that are reasonably likely to impact the financial condition or operating performance of a company and therefore are most important to investors.” SASB notes that “companies decide what is financially material and what information should be disclosed, taking legal requirements into account,” as described on its website. 

For purposes of this discussion, the SASB materiality map highlights areas within key sustainability business issues, or General Issue Categories, in a Sector Level or Industry Level Map. Under the Social and Human Capital Categories, the Sector Level Map identifies the issues that are likely to be material for more than 50% of industries in the sector, including Food & Beverage, Health Care, Infrastructure and Transportation. It is interesting that these are many of the industries that were declared “essential” during the pandemic, requiring a workforce to fulfill business needs.

Tailored Views on What is “Material”

Since last year, international standard setters and some investors have begun to consider whether companies should revise their viewpoints on materiality to include more of the “S” factor. On April 21, 2021, Lawrence Heim, editor of, provided a review of the newer terms for materiality that have been developed in Europe, in “Materiality: Traditional, New, Double or Dynamic? –” The new terms include “double” materiality and ”dynamic” materiality, terms which have not been applied in the U.S. 

On April 25, 2021, Peter Reali, Jennifer Grzech, and Anthony Garcia, Nuveen, published an article, in which they noted the disparity of company reporting aligned with the SASB or TCFD reporting frameworks tied to materiality:

Many investors and industry groups have endorsed these standards for their materiality, consistency and robustness. However, in 2020, less than 25% of S&P 500 companies’ ESG reports were aligned with the SASB reporting framework, only 16% of reports referenced TCFD and only 5% of companies published complete TCFD-aligned reports. ESG: Investors Increasingly Seek Accountability and Outcomes (

In a recent article, “Corporate Governance Update: “Materiality” in America and Abroad “ posted by David A. Katz and Laura A. McIntosh, Wachtell, Lipton, Rosen & Katz, on May 1, 2021, on the Harvard Law School Forum on Corporate Governance, the authors acknowledged the European “concepts of materiality, “ that in their view carried the potential to impact the “bedrock” definition of materiality in the United States. They said:

Over the last century, the American definition of materiality has been a great gift to shareholders and issuers. It paved the way for a disclosure regime of real use and value to the financial market. It is to be hoped that U.S. regulators, lawmakers, and investors recognize that this cornerstone remains an essential piece of the foundation of corporate America, and refrain from chipping away at its substance.

Shortly after this publication, SASB’s Janine Guilot and Jeffrey Hales countered the Wachtell article, on May 14, 2021, with their posting, “Materiality: The Word that Launched a Thousand Debates,” on the Harvard Law School Forum on Corporate Governance site, saying:  

SASB remains, as it has always been, focused on facilitating decision-useful and cost-effective disclosure of financially material sustainability information to investors and other providers of financial capital. To that end, SASB’s standards-development process continues to be evidence-based and market-informed, and our approach continues to require evidence of investor interest and evidence of financial impact before proposing to include a topic in SASB Standards. Our research seeks out such evidence, and our due process is designed to garner insight into those issues from investors, issuers, and other subject matter experts.

Securities and Exchange Commission (SEC) Commissioner Allison Herren Lee, on May 24, 2021, spoke on “Living in a Material World: Myths and Misconceptions about “Materiality”, before the 2021 ESG Disclosure Priorities Event Hosted by the American Institute of CPAs & the Chartered Institute of Management Accountants, Sustainability Accounting Standards Board, and the Center for Audit Quality. In her remarks, Commissioner Lee said:

Let me start with the myth that I believe is the most prevalent. We frequently hear that new climate or ESG disclosure requirements are unnecessary because the existing disclosure regime already requires the disclosure of all material information.[4] This is simply not true, and reflects a fundamental misunderstanding of the securities laws. Public company disclosure is not automatically triggered by the occurrence or existence of a material fact. There is no general requirement under the securities laws to reveal all material information. Rather, disclosure is only required when a specific duty to disclose exists.[5] | Living in a Material World: Myths and Misconceptions about “Materiality”

Commissioner Lee’s remarks built on the final SEC amendments in late 2020 to Reg S-K disclosures which require that a company report on human capital resources and human capital measures or objectives that the registrant focuses on in managing the business. See In addition, the SEC’s Asset Management Advisory Committee (AMAC) met on July 7 and released its draft recommendations that the SEC take steps to “foster meaningful, consistent, and comparable disclosure of material environmental, social, and governance (ESG) matters by issuers” and:

– To foster meaningful, consistent, and comparable disclosure, the SEC should encourage issuers to adopt a framework for disclosing material ESG matters and to provide an explanation if no disclosure framework is adopted. 

– In addition, the AMAC recommends the SEC initiate a study of third-party ESG disclosure frameworks for the disclosure of material ESG matters to assess whether the frameworks could play a more authoritative role in the future.

And finally, also on July 7, 2021, Barclays Capital, Inc. released a comprehensive report on “Sustainable & Thematic Investing- Human Capital: The overlooked company asset.” In the Executive Summary, the authors said, “Human capital is being re-examined as a corporate asset, with a growing need for a wider interpretation to better identify the impact on corporate outcomes (financial and non-financial). As regulators and investors seek to manage human capital risks and opportunities, additional human capital data and metrics will be required to supplement existing company disclosures.” 

The report identifies human capital as the “second most prevalent issue across the SASB standards, after climate risk.”  Barclays cited the preliminary findings by SASB on its revised Human Capital Framework, published in December 2020, noting that it “appears that key focal areas will include: mental health & wellbeing, workplace culture, workforce investment, alternative workforce (i.e., classification of workers), labour conditions in the supply chain and workforce composition & costs.” Within the report are data sets to provide key metrics for assessment. 


One of the biggest challenges to the Social factor is how to measure it effectively, making it less difficult for investors to assess. In an article posted last June on the Harvard Law School Forum on Corporate Governance website, Jonathan Neilan, Peter Reilly, and Glenn Fitzpatrick, FTI Consulting, mentioned that the new emphasis on the ‘S’ would bring more scrutiny on third-party rating agencies, reporting frameworks and standards. Time to Rethink the S in ESG ( They said, 

“It became increasingly clear that factors which fall within the ‘S’ of ESG are as common as (and for some companies more so than) those within ‘E’ and ‘G’ in contributing to business risk and, in turn, causing lasting damage to a company’s reputation.” In their view, factors relating to “S” were some of the most pressing issues for companies globally….In looking at examples of ‘S’ practices among businesses, it was also evident that these practices are a barometer for corporate culture. Where companies have a strong and shared culture across the organization, ‘S’ practices tend to be strong. Where a culture is poor, or considered ‘toxic’, ‘S’ tends to follow the same pattern.

A mix of approaches and data sets for materiality relating to the Social side of ESG are emerging. And past practices are insufficient in meeting this newly forming approach.  We should not assume that current disclosure requirements will provide companies and investors all of the intelligence they need in a post-pandemic world. Weaving more Social measures into the financial reviews of materiality may create a new fabric for our society, one that is stronger and more flexible for everyone. Let it be sewn.