The effect of considering the financial materiality of ESG (environmental, social and governance) issues on firms’ ESG performance scores and rankings is investigated using Morgan Stanley Capital International (MSCI) ESG Ratings and the financial Materiality Map^® developed by the Sustainability Accounting Standard Board (SASB). Results show that when financial materiality is applied, firms’ ESG performance scores change significantly. Further corroboration is provided by significant changes in firms’ ESG rankings when ESG performance assessment is based on SASB-adjusted ESG performance scores. Environmental pillar issues, and particularly natural resource use, are predominantly responsible for the changes. Overall, the results suggest that financial materiality affects the informative value of ESG scores and rankings, allowing the identification of investment opportunities in firms with high scores on business-critical ESG issues. We argue that consideration of financial materiality can better inform investment decisions based on ESG performance. This study adds to the understanding and assessment of ESG performance and its information content.

This study examines how governance configurations comprised of board capital, CEO power and the presence of large shareholders are associated with innovation commitment in organizations. We take a configurational perspective, proposing that organizational innovation commitment is contingent upon how interdependent governance attributes associated with monitoring and resource provisioning can either enhance or constrain management’s discretion to invest in research and development (R&D). Using fuzzy-set qualitative comparative analysis (fsQCA), we identify complementarities which lead to three board archetypes that foster firm innovation commitment. ‘Pilot boards’ have both board capital breadth and depth allowing for active and close participation in innovation decision-making. ‘Pivot boards’ possess the depth of industry-specific expertise and linkages required for providing resources and oversight of powerful CEOs. And ‘advisory boards’ have less power but have outside directors who have breadth of expertise and relational capital that complements the oversight provided by powerful family owners so as to effectively advise management on innovation decisions. Our findings underscore that governance mechanisms work in tandem, not in isolation, to explain significant organizational outcomes, specifically those associated with innovation commitment.