Materiality is a process used to identify and prioritise the sustainability issues that matter most to a company and its stakeholders. Thanks to a big push by the common guidelines and standard setters, such as the Global Reporting Initiative (GRI) and the Integrated Reporting Council (IIRC), it's no longer an elusive strategic tool used only by the sustainability leaders. It has become far more mainstream – 94% of companies in our Reporting Matters assessment of World Business Council for Sustainable Development (WBCSD) members in 2016 disclosed some form of materiality assessment.

 

How useful is materiality and are companies using it to its full potential? 

At times, companies' use of materiality feels like a tick box exercise to satisfy the requirements of the myriad of sustainability standards and guidelines that companies face these days, rather than a meaningful exercise. 

In fact, none of the companies included in the Reporting Matters assessment scored above 75% for materiality and 82% of the companies assessed scored less than 50%. 

 

Why does this matter?  

Too many companies are investing in materiality without realising its true value. Used to its full potential, materiality can be an excellent tool to: 

  1. Check or validate that the most important – and emerging – issues are being effectively acknowledged and managed
  2. Inform strategy, ensuring it addresses the most important issues and provides a realistic sense of ambition. 
  3. Engage in meaningful dialogue with stakeholders. 
  4. Engage internally about sustainability priorities to promote integrated and holistic thinking across all business functions.
  5. Inform decision making.

So, where are companies falling short?

  1. Lack of differentiation 

Most materiality matrices look the same. You would expect this to a certain extent - a mining company will face very similar challenges to others in its sector. But the approach to materiality has become so generic that you can pick up ten anonymised materiality assessments from a range of sectors and struggle to find much difference between them. 

  1. A disconnect from corporate risk 

There's a stark disconnect between risk and materiality. The key risks identified by most companies include a handful of key non-financial or sustainability related risks, but their risk processes and materiality assessments are often undertaken in silos. 

In fact, research conducted by WBCSD found that less than one in three issues identified in sustainability materiality assessments are disclosed as risk factors in legal filings for investors.

  1. Infrequent updates

The world changes fast, yet many companies update their materiality assessments every 3-5 years, using a limited range of inputs.

What's the solution?

  1. Break down the silos 

Part of the solution lies in more integrated thinking. This doesn't mean a complete transition to integrated reporting, it just means taking a clearer step towards embedding sustainability within the business. By bringing together the sustainability and risk teams, as well as other key functions within the business – HR, finance, environment and/or operations, health and safety and other issue-specific specialists – you'll gain a far more comprehensive picture of the key risks and issues facing the business. In turn, your materiality assessment will gain more credibility as a useful strategic process, rather than as a tick box exercise to publish in a report.  

Who’s walking the talk?

Capita: We worked with Capita on their materiality assessment in 2016. The process involved a workshop with heads of function across the business, to ensure that a range of perspectives were considered and that the output aligned to the reality of the business.

  1. Use a range of inputs, often

Gone are the days where engaging with ten stakeholders would be sufficient. Today, we have a wealth of tools to draw from. Select stakeholders wisely to ensure they are informed and can provide quality insights. Supplement these with ongoing media scanning, social media analysis and surveys to assess the sentiment of customers and employees and a frequent review of bigger picture trends.

Who’s walking the talk?

Some progressive companies are using services from organisations like eRevalue, who use smart algorithms and big data to look at materiality through the lens of legislation, competitor and reputational dimensions – all through a real-time dashboard called Datamaran.

  1. Connect to the bigger picture 

Materiality assessments are more successful when they feel relevant and credible. For example, connecting materiality to corporate risk helps to ensure that materiality becomes more relevant to the wider business.  

Relevance and credibility can also be achieved by linking materiality to hard science and external trends – both industry specific and global mega trends. The Sustainable Development Goals are an excellent tool to position the sustainability issues unique to your company, within a global context.

Who’s walking the talk?

Ford Motor Company: Ford’s materiality process includes ‘megatrend amplification’. The thinking is that the more an issue intersects with key mega trends, the more complex, uncertain and important it will become over time.

  1. Keep materiality front of mind 

Resist the urge to put materiality back in the drawer after your report has been published. Chances are, significant time and investment went into your materiality assessment, so make the most of it! Use it to inform your strategy, to help set targets and metrics, and to engage people inside and outside of your business. 

What's next?

If you'd like to discover more about materiality, and how to squeeze the most value from it, drop us a line. 

In the meantime, check out last year's Reporting Matters assessment, produced in partnership with WBCSD.

 

 

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