Materiality Assessment Prior to Reporting: a How-to Primer
Materiality has become something of a buzz word in the sustainability arena in 2013, helped by the increased emphasis placed on “material” issues in the new G4 sustainability reporting guidelines from the Global Reporting Initiative (GRI). There can be no doubt that materiality is a valuable concept for companies to consider when developing a sustainability strategy or report (regardless of whether or not it is being done to be “in accordance” with the GRI G4 guidelines), as it ensures that there is a focus on the most important issues. However, it requires a materiality assessment to be undertaken prior to reporting; a process that will be new for many, is currently poorly understood and documented, and which involves several practical challenges that are yet to be widely debated.
The starting point for any materiality assessment needs to be a long list of all the sustainability issues and impacts that are relevant and hence potentially material. The GRI provide a set of 46 sustainability aspects, however these headings alone are ambiguous, open to misinterpretation and in some cases do not clearly reflect the subsequent disclosures required. Instead, we have found that more customized, sector-specific sets of potential sustainability issues will need to be established that are relevant and meaningful to a given company and its stakeholders. This is the approach adopted by our client Morgan Sindall Group, in an ongoing materiality assessment, which took as its starting point a set of issues specifically established as pertinent to UK construction companies. However, care must be taken when creating such a list to ensure that a company is not prejudging which issues are relevant and omitting others that are assumed not to be.
Another challenge is to define the boundaries of material issues and impacts. Typically, non-financial reporting has tended to have been limited to the financial or operational boundary; that is to topics that are within the direct control of the reporting company. However, the GRI G4 guidelines recommend consideration of all issues and impacts, regardless of whether they occur within or outside of an organization. The need to consider indirect impacts casts the materiality net much wider than before. For example, it might require a company to consider – and report on if deemed material – the human rights performance of its suppliers or the energy use of its consumers; issues which perhaps were previously outside the operational boundary and hence omitted from reporting.
How to engage stakeholders?
The GRI G4 guidelines state that the process for defining report content should include stakeholder views. However, stakeholder views are many and varied, and without careful planning a stakeholder engagement exercise could easily end up simply reflecting the views of those stakeholders that are most vocal or easiest to engage. Plus, of course, stakeholders are likely to be geographically diverse. One emerging solution is online engagement, using a platform such as StakeholderTALK, which allows a large number of stakeholders to contribute their views, regardless of location, and permits each respondee an equal voice. For example, a recent stakeholder engagement exercise by Bouygues Energies and Services supplemented traditional face-to-face engagement of key UK personnel with online engagement of all its UK staff and specific external stakeholders. A further challenge is to take into account the relative importance of different stakeholder groups before a final assessment of materiality is made.
Material to which part of the business?
Many businesses offer a diverse range of products and services in a range of territories, yet produce a consolidated sustainability report. If a materiality assessment is being carried out as part of the reporting process, then the emerging need to identify a single set of material issues at Group level could mask important differences in what is material for different parts of the company. Initially, at least, we would expect to see large companies retain a single consolidated report based on a single set of material issues. However, moving forwards we would not be surprised to see companies address this challenge by moving towards more localized and business function-specific materiality assessments and sustainability reports. In terms of making reporting more relevant and useful to a range of stakeholders, this can only be a good thing. For example, both Saint-Gobain and Bouygues Construction – two large multinational companies headquartered in France – have in recent years started to produce sustainability reports specific to their UK markets.
Once stakeholder input has been used to prioritize relevant sustainability issues and impacts, the next challenge for companies is to decide where the materiality threshold lies. In other words, which issues are sufficiently important to be reported? A ‘materiality matrix’ is a useful way of plotting relevant issues and impacts based on impact to the business and importance to stakeholders. This way of visualizing the prioritization highlights not only the relative priority assigned to all issues and impacts, but also the extent to which there is a disparity between the views of the business itself and the views of its stakeholders. Typically, issues that appear in the upper-right hand part of the matrix would be deemed as most important to report. However, the fact remains that there is no absolute measure of materiality and no ‘correct’ number of material issues, meaning we are likely to see different companies set the materiality bar at very different heights.
A final practical challenge that companies will have to address is how regularly they ought to be revisiting their materiality assessment. Some issues will have enduring importance (such as health and safety or greenhouse gas emissions) and will likely be deemed material year after year. Yet there will be other issues that due to technological advances, legislative changes or specific news events (for example, the recent public scrutiny in the UK of corporate taxes paid) suddenly rise up or fall down the corporate and sustainability agendas. How companies balance the relative importance of long-term issues, for which progress has already been made, against new and emerging issues, which perhaps initially pose more questions than answers, remains to be seen. What cannot be disputed, though, is that a regular materiality assessment should help ensure that no new issues are missed and help anticipate emerging issues before they become business critical.
Richard Westaway is a sustainability specialist at IMS Consulting. For over 20 years IMS Consulting has specialised in helping clients unlock their sustainable potential throughout their strategy, engagement and communications. Founder of StakeholderTALK™, the complete online engagement and communications toolkit, IMS is experienced in engaging with a wide range of stakeholders to inform sustainability reporting. It has delivered sustainability reports for leading companies, including Skanska AB, Morgan Sindall Group, Saint-Gobain and Jewson. As a CDP Accredited Provider, IMS Consulting’s engagement and communication platforms are used by British Land, the Green Construction Board and British Water.
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