I have a problem with sustainability reporting. Actually, I have a lot of them, but one at a time.
Materiality, as used in sustainability reports, has, more often than not, become a complete throwaway exercise in order to achieve a rubber stamp of approval (or “in accordance”) from one of the various reporting guidelines or to demonstrate a form of “engagement” with audiences that actually doesn’t exist. All of the reporting guidelines, all risk management approaches, all major management systems have some sort of materiality process embedded in them, so we all know that materiality is a critical function to running an effective business. But when it comes to sustainability reporting, companies figure that a token approach leading to no meaningful action is sufficient. What gives?
Here is the materiality process that I encounter more and more frequently as sustainability reports proliferate and grow stale:
- First, the company will look over the list of indicators (what do we or our stakeholders care about?) from one or more voluntary reporting guidelines such as the GRI or SASB, regardless of whether these indicators have any relevance to their business. In many cases, these guidelines will be the major, of not the only, place where the company will search for potentially material issues.
- Second, the company will throw these indicators onto a two-dimensional matrix and ask a set of internal stakeholders (read: employees) to plot the indicators on the matrix. This is the equivalent of conducting a Ouija Board session of prioritization — the hand that pushes hardest directs the order of issues. Frequently, there are no criteria to guide this prioritization. Even more frequently, the overriding criteria is to meet and report against all of the indicators in those reporting guidelines so that the company can claim to be “in accordance” (or other language) regardless of whether those indicators have anything to do with the company and in direct opposition to the guidelines themselves (which suggest materiality should determine the selection of indicators).
- Once the matrix feels comfortable to the company’s sustainability team, it is shipped off to the executives to either rubber stamp or to have issues retroactively, and irreversibly, re-prioritized based on the personal experience of these executives.
- Finally, the matrix of prioritized issues is finalized, published in the sustainability report, and then…nothing. No commitment to management or target-setting against high-priority issues or expectation of performance data.
The sum value of the above materiality process to the company and its stakeholders is zero.