The character of a factor that genuinely affects financial performance or risk, as opposed to a mere moral preference.
Financial materiality qualifies an issue that has a proven effect on the loss experience, performance or risk of a company, and that deserves on that basis to enter the insurer's analysis. Applied to ESG, it traces the dividing line between criteria that genuinely predict loss, failing governance, climate and transition exposure, pollution, and those that express only an ethical preference with no demonstrated link to risk. To found underwriting on materiality has the advantage of being apolitical, for it rests on an observation of what is risky and not on a judgement of what is desirable, which allows it to survive the backlash that weakens values-based ESG. The related notion of double materiality adds the company's impact on the environment to the environment's impact on the company.
A company's exposure to fossil fuels is financially material, for it heralds risks of transition, litigation and asset depreciation that the insurer can legitimately price.
matérialité, double matérialité