Abstract: Using SASB’s materiality framework, prior research finds alpha for the portfolio of firms with improving ratings on material ESG issues. We replicate this finding and provide a fundamentals-based perspective on why the materiality portfolio outperforms. More financially established firms, identified as firms with larger size, lower growth, and higher profitability relative to their sector, are more likely to create material strengths and address material weaknesses in their ESG scoring. This link dictates that one should comprehensively control for fundamental determinants of expected returns before attributing stock outperformance to improving material ESG scores. We find that the materiality portfolio does not generate alpha after we explicitly account for exposure to profitability and growth factors. Our evidence underscores the issue of correlated omitted fundamental factors in the debate of ESG alpha and has direct implications for the development and marketing of financial products powered by sustainability reporting frameworks.