Which statement best describes the difference between a material topic and an emerging risk?

• A. A material topic is one that could materially impact enterprise value; an emerging risk may not yet be material but could become so; SASB focuses on the material topics
• B. A material topic is the same as an emerging risk
• C. An emerging risk is always more important than material topics
• D. Material topics are only concerned with environmental issues

Answer: (A)

The key idea is the distinction between what is currently financially material and what might become material in the future. A material topic is an issue that could materially impact the company’s enterprise value and is thus relevant for current disclosures and decision-making. An emerging risk, on the other hand, is a potential issue that isn’t material yet but could become material as conditions change; SASB uses that concept to flag risks on the horizon, but the focus for reporting is on material topics today. Therefore, the statement that material topics could materially affect enterprise value now, while emerging risks may not yet be material but could become so, and that SASB concentrates on the material topics, best captures the difference.