Impact materiality, environmental influence and value relevance: evidence from polluting industries

Purpose This study aims to examine the direct and indirect effects of adopting the impact materiality (IM) principle on stock prices, with environmental performance (EP) and environmental decoupling (GAP) serving as simultaneous mediators. It further compares IM’s influence on each mediator and evaluates the relative strength of the two indirect pathways. Design/methodology/approach The analysis relies on data from the Refinitiv Eikon and Bloomberg databases, covering 487 companies from polluting sectors across 10 countries (2016–2024). Hypotheses are tested using structural equation modeling in R 4.5.1, complemented by dynamic panel analysis to address endogeneity concerns. Findings The results indicate that IM adoption increases GAP more than EP. Moreover, it exerts a positive direct effect on stock prices, partially mediated by both EP and GAP, with GAP emerging as the stronger mediator. In-depth analysis shows that EP improvements are limited to environmental innovation actions, whereas actual emissions rise. Alarmingly, 86.75% of IM’s influence on stock prices via reported emission reductions is driven by inflated and misleading disclosures. These findings suggest that the current implementation of the IM approach undermines its environmental objectives. Originality/value To the best of the authors’ knowledge, this is the first study to examine the simultaneous environmental effects of the IM principle on stock prices, offering novel evidence of its actual environmental influence. The findings reconcile and refine prior research and offer important implications for investors and Global Reporting Initiative and ESRS standard setters.