Corporate Citizenship Perspectives

The Buzz about Materiality: Defining what's important

Posted by Lynnette McIntire on Feb 4, 2014 12:35:48 PM

On April 16 in Denver, the Boston College Center for Corporate Citizenship will launch a new course titled "Materiality: What Matters to Corporate Citizenship Strategy and Reporting." The author of this article, Lynnette McIntire, will be the instructor. To register, click here.

Just last year, the majority of people who wrestled with materiality were investor relations folks. Now, the term is on the lips of virtually every sustainability report editor. The reason? "Materiality" is now a foundational element of the new Global Reporting Initiative (GRI) G4 reporting framework—and every other sustainability reporting framework.

In short, non-financial materiality assessments use stakeholder and internal business concerns to determine which subjects are most important for disclosure. These should include both real and perceived issues where the company has an actual impact or have the potential to influence others who have an impact. It includes social, environmental, and economic impacts.

Companies that had the foresight (luck?) to do materiality assessments in recent years are ahead in the game. Reporters of late may see this process as another box to check on their way to a respectable/credible sustainability report. Instead, a materiality assessment (MA) should be viewed as a valuable management and strategic planning tool.

When done right, a materiality assessment can serve multiple purposes:

Fact-based priority setting
All companies are resource-strapped. An MA provides a methodical way to focus disclosure and activity on social and environmental issues (in addition to financial) that really matter to the company and to stakeholders, based on actual dialogue.

Risk management
A holistic review of operational impacts and stakeholder concerns can telegraph potential issues of risk, giving companies time to prepare. This is particularly true when activists and other contrarian voices are considered.

A benchmarking tool
Materiality should include a broad view of emerging industry issues. The growing number of industry coalitions such as the Electronics Industry Citizenship Coalition, the Sustainable Apparel Coalition and industry sector reporting frameworks developed by GRI and SASB (Sustainability Accounting Standards Board) are actively defining which issues are material. Companies can use these guides as a way to begin their own analysis of how their company's stack up on each indicator compared to their peers.

Broad perspectives
Materiality assessments require a variety of external stakeholders to voice their opinions of the company's performance. This can help companies stop the self-delusion that occurs when only internal voices (especially senior management) set the company's agenda. They also may provide new insights for market opportunity or industry pain points that can spark innovation.

Reaffirmation of commitment
Materiality assessments can confirm also that a company's sustainability efforts are on track with social expectations, are generating positive returns, and reinforce business objectives.

A milepost for the future
Ideally, an MA catalogues concerns that are somewhat evergreen. Gaps and strengths are inevitably uncovered, giving executives a set of issues that need to be thoughtfully addressed over time.

In conclusion, materiality assessments may be just what sustainability leaders have been looking for: a tool to focus their efforts for the greatest, most valued impact.

 

 

Topics: Materiality, Global Reporting Initiative (GRI), Sustainability Reporting, Benchmarking