The concept of materiality is central to developing your sustainability proposition. This article will explain the process of materiality and how your company can make better decisions based on information that matters.
What are material issues?
Another word for ‘material’ is ‘important’, so material issues are those that can reasonably be considered important to the success of an organisation. In light of the COVID-19 pandemic, some issues that are prominent for most companies are employee wellbeing, employee relations, supply chain management, strong governance and transparency and global economic conditions.
What constitutes a material issue varies between different reporting frameworks. For instance, the GRI Standards’ definition places an emphasis on a ‘company’s significant economic, environmental and social impacts’ that influences stakeholders’ decisions; in comparison to the IIRC’s <IR> Framework, which defines materiality as ‘issues that substantively affect the organisation’s ability to create value over the short, medium and long term.’ RobecoSAM, an investment specialist focused exclusively on sustainability investing, defines material topics as ‘any factor which might have a present or future impact on companies’ value drivers... thus on long-term shareholder value creation.”
The fact that there is more than one definition of materiality can make it difficult to start thinking about sustainability reporting. We recommend that companies should simply consider their main sustainability impacts, and, in dialogue with their stakeholders, prioritise certain topics and issues to report on.
How to define what is material
We help companies undertake a process through which topics are identified and prioritised in order to establish a focus to define their sustainability strategy.
Step one: Identification
Our materiality process guides companies on how to identify their major sustainability impacts. Every process is unique as it is a reflection of a company’s needs and in the context of its business model, strategy, risks and opportunities. Not all topics are equally important, and some could be positive or negative.
We suggest generating an overall list of material issues in a number of ways. Firstly, you could approach your company’s chosen framework(s) to tailor and edit the overall list. These frameworks can be the GRI Standards, <IR> or SASB (Sustainability Accounting Standards Board). The frameworks will help you to decide which areas should be prioritised and receive the most attention from the company.
In order to identify company-specific impacts, we recommend an analysis of the following: (1) your business model and value chain, (2) main topics and future challenges for the sector and the markets your company operates in, (3) your company’s core competencies and how your current service offering contributes to the company’s sustainable development.
Step two: Prioritisation
Once a list of material issues has been finalised, we encourage a dialogue with key stakeholders for companies to answer the question: ‘What are the most important issues, and to whom?’.
In order to answer this question, you must review the interests and expectations of all the organisation’s stakeholders. Some companies engage a wide range of stakeholders, such as their employees, investors, customers, local communities and the general public. Other companies may prioritise a specific group – for example, their providers of capital.
The benefits of materiality reporting
The process of defining material aspects, including the stakeholder engagement element, is highly strategic and its results stretch far beyond just the production of a sustainability report – it touches on your company’s overall sustainability strategy, risk management, relationships, communications and even the design of products and services with sustainability impacts in mind.
The focus on material issues makes your reporting more relevant with reference to the global sustainability challenges your company faces. This enhances your company’s sustainability proposition, sustainable competitive advantage, credibility and accessibility to stakeholders such as customers, employees and investors.
By developing a robust understanding of what issues are material to operations, the environment and communities, your company can better prevent or mitigate risks and gain access to sustainability-related opportunities. This results in a stronger investment proposition overall. Reporting plays a pivotal role in communicating these management actions to a variety of stakeholders.
How we can help?
We can apply our methodology to identify the material issues and other material topics for your company and facilitate engagement with key stakeholders. We ensure your materiality process is systematic, documented and replicable so it can be used consistently in each reporting period.
Our approach initially focuses on the development of your materiality assessment and sustainability strategy before considering how this will fit in with relevant sustainability frameworks, metrics, KPIs and reporting in general.
To find out more about how we can help you with your materiality assessment journey, get in touch.