Materiality has been thrown into the mainstream of sustainability reporting. Three leading standards – the Global Reporting Initiative (GRI)’s G4 guidelines, the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) – all have materiality at their core, requiring companies to adjust their processes accordingly.
I am a strong believer in materiality and the value it can bring to a business when done well, helping to focus strategy and reporting on the issues that matter most. However, for a lot of companies the changes in expectations on materiality will come as a shock to the system. Meeting them will require a significant upfront investment and they will probably seem burdensome at first glance – possibly even at second glance as well.
Focusing on the GRI G4 guidelines, these now require companies to take a value-chain based approach to materiality. This means assessing and understanding where the most significant sustainability impacts occur, both within and outside an organisation’s direct control. While the question of whether or not GRI goes too far with these expectations is being debated, the deadline is set. For companies who wish their reporting to align with GRI, reports produced after 31st December 2015 must be developed using the G4 guidelines.
Taking a value chain based approach to materiality across diverse business portfolios, complex global supply chains and multiple stakeholders isn’t going to happen overnight. Even companies who have dabbled in materiality before will find the shift to meet GRI’s G4 requirements challenging.
However, the rewards for getting it right outweigh the costs, and are far greater than just having your report formally recognised by the GRI. A good materiality assessment will enable a company to better:
- Align sustainability with business strategy;
- Inform decision-making and strategic resource allocation;
- Identify potential new sustainability opportunities and better manage risks;
- Design and deliver appropriate sustainability policies and programmes;
- Drive focused communication and reporting with more impact.
With not long before the clock runs out on GRI’s grace-period, the question is “what can companies do to prepare for a value-chain based approach to materiality?” While there is a lot more to materiality than can be captured in a short article, here are a few tips on how to approach materiality and take a value-chain approach:
1. Set a clear purpose and set of objectives for materiality right at the beginning.
This will help to set expectations internally. It will also help to develop an appropriate and robust process for the materiality assessment, driving optimal results.
2. Map your value-chain and understand where impacts lie both within and outside your direct locus of control.
There are various ways to map and assess your value chain. Choosing the right one will depend on the nature of your business. The aim should be to identify sustainability “hotspots” both upstream (supply chain) and downstream (customers and consumers). One example is by conducting a product lifecycle assessment to understand the sustainability impacts of a product right from the sourcing of raw-materials through to the end use by the consumer.
3. Don’t just engage as many external stakeholders as possible.
Really think about whose perspectives are important to include and why. Ask questions such as (1) Who can affect the opinions of our key stakeholders, such as customers, business partners, and investors? (2) Who can affect the future viability of the organisation? (3) Who is most significantly affected by the business? A stakeholder mapping exercise can also be a valuable tool to help prioritise who is important to engage in the materiality process.
4. Use materiality to help the business understand that sustainability isn’t divorced from the day to day running of a business.
Sustainability is about ensuring continuity of business, not just doing less bad in the world. A materiality assessment provides an opportunity to engage key internal stakeholders across the business and help them understand what sustainability means for your company. Using the language of sustainability (or CSR, citizenship, etc.) may not be the best way to do this. Wherever possible, use layman’s terms to describe materiality, or whatever business language is most common at your company.
5. Be transparent about the process which you have followed.
It’s all very well announcing that you have identified the most material issues for your business, but readers will want to know how you did this, and the difference that it makes. The expectation of G4, and other standards, is that the report should include a statement on materiality. This statement should cover:
- a detailed description of the process undertaken to assess and define material issues;
- a prioritised list of the material issues and an explanation of why they are important; and
- an explanation what will change as a result of the assessment i.e. the organisation’s plans to address its material issues.
Most importantly, remember that materiality is supposed to make your job easier, not harder, by helping you prioritise issues and engage with stakeholders. Good luck!