Updated: Apr 22, 2019
The following article appeared on GreenBiz.com on August 15, 2017
In the sustainability world, "materiality assessments" are the backbone of reporting. They help identify an organization’s most "material issues" and determine what should be reported. The process of identifying these issues involves reaching out to internal and external stakeholders to get their input. This can be time-consuming, but is a huge opportunity to solicit input on the strategy too.
But many organizations misstep in the process. I hear more stories of materiality assessments that didn’t quite deliver than stories of those that did. Here are some thoughts on improving them.
The key to getting real value out of any materiality assessment is starting with a clear understanding of what information you are looking for. This enables you to ask the right questions, choose the right stakeholders, apply the appropriate methodology and visually present the information effectively to help inform decisions.
Second, materiality assessments can (and should) inform both reporting and strategy.
But the information that is most helpful for strategy development is somewhat different from the information requested for a report. That is fine. It can be presented separately.
"The most important thing when designing any assessment is that the questions are crafted and stakeholders selected to get answers that genuinely help you make decisions."
There seems to be fundamental confusion about what is "material."
When asked for guidance on doing a materiality assessment, I commonly hear questions such as: Who are the right stakeholders to engage? What are the right questions to ask? What should the two axis on a materiality matrix be?
Having served as strategy director at Futerra for nearly a year, I now have an answer to factors that generate confusion.
First, the guidance was somewhat ambiguous. The Global Reporting Initiative (GRI) is still the leading organization offering guidance on reporting. Under GRI’s G4/Standards material issues are the topics considered important for "reflecting the organization’s economic, environmental and social impacts" or "influencing the assessments and decisions of stakeholders." Earlier guidance under G3 left room for various interpretations and reporters are still catching up.
Second, while GRI states there should be a strong link between materiality and strategy, the guidance is focused on what to report on, not what the strategy should be. When organizations use a materiality assessment to guide strategy, the criteria for what is getting prioritized may get mixed up.
What is most "material" from a reporting standpoint may differ from what gets prioritized in a new strategy.
Reporting and strategy development both involve a close look at your material issues and they both benefit from stakeholder consultation. So it makes perfect sense for chief sustainability officers (CSOs) and CSR managers to use one materiality assessment for both purposes.
"A materiality assessment can be most useful if designed to inform both reporting and strategy."
But reporting and strategy are not the same. There is a fundamental tension between two objectives: deciding what to disclose in your sustainability report (largely backward looking); and deciding what to focus on in your strategy (largely forward looking). The topics prioritized and stakeholders contacted may be different.
From a reporting standpoint, organizations aligning with GRI will want to prioritize topics based on the biggest impacts their organization and the things that influence stakeholder decisions. Current employees, NGOs and investors, for example, can help answer these questions.
From a strategy development standpoint, the goal is to prioritize what an organization can or should do. In this vein, questions about what is within the company’s power to change and what tools, industry groups or new innovations exist to help them do it, can be quite helpful to the action-oriented CSO. These are different questions, and for answers, it can be useful to consult with current employees and people running industry initiatives or innovation labs. In some cases, these might be different people than those who would be consulted for disclosure purposes.