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Vanishing Materiality in Sustainability Reporting

cort-todd-YaleI 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.

Todd Cort
Todd Cort, PhD, is a faculty member at the Yale School of Management and Yale School of Forestry and Environmental Studies. He also serves as the faculty co-director for the Yale Center for Business and the Environment (CBEY) and adjunct faculty member with the Columbia University Earth Institute. He previously served as director of sustainability advisory services for TUV Rheinland and Det Norske Veritas, where he consulted on sustainability matters including metrics, risk management and auditing practices.
 
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5 thoughts on “Vanishing Materiality in Sustainability Reporting

  1. Yes, yes, yes and Thank you, thank you, thank you. Over the years I too have watched sustainability become diluted to the point of being meaningless. I realize the focus of the article is on reporting aspects and you do make excellent points about indicators and metrics, but all of this has the be built on a foundation of a meaningful sustainability program – emphasis on “meaningful” as you made clear. I have grown frustrated with the proliferation of misguided media coverage and consultants and recently wrote a rather pointed piece on the topic – http://www.elmsustainability.com/sustainability-is-stupid/

    Your message is highly credible coming from someone with your background and I hope it is spread far and wide. I have found few people who feel strongly enough to want to change much in this regard. Hopefully, we will begin to see movement.

  2. Thanks Todd, you raise several interesting points. In addition to metrics, sustainability reports should include narrative about how the metric issue is governed and managed within the organization. If companies truly “get it” about a material issue, the narrative will provide concrete evidence as to how management of the issue is inculcated within day to day operations. Without that narrative readers should be justifiably suspicious that the metric is more designed for external consumption that actual process improvement.

  3. Great insight, Todd! I especially like that you point out potential myopia related to examination of GRI metrics without looking at the broader scope of potential issues. There are many sets of principles out there that describe stakeholder concerns and requirements that don’t appear to fit easily into the GRI metrics. A comprehensive approach across many sets of principles and metrics creates a much more solid approach, and need only be done once every 3-5 years to be able to demonstrate a sound foundation. There are a few really good tools available out there for this as well.

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