What Is Materiality?
The concept of “materiality” arose alongside the inception of securities law itself. Rule 14a-9 of the Securities Exchange Act of 1934 provides that no proxy solicitation shall be made “which . . . is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading.” In a seminal 1976 decision, the Supreme Court ruled that “an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.” TSC Industries Inc. v. Northway, Inc. 426 U.S. 438, 449 (1976). In short, the Security Exchange Commission (SEC) has the authority to require companies to disclose information that may sway the investment decision of a reasonable shareholder. The escalating impacts of climate change raise a few questions.