5 ways to improve your materiality assessment
In today’s world, corporates often struggle to keep up with the rapidly changing nature of known issues, the emergence of new issues and evolving stakeholder expectations. Customers, in particular, are now demanding more from company business practices, as well as higher levels of responsibility.
This landscape can be difficult to navigate, and companies are increasingly turning to materiality – the process of identifying and prioritising social, environmental and economic issues – to better understand and act on business and stakeholder’s dynamic needs.
If the materiality process is doing its job, it provides an invaluable tool for prioritising, making sense of the sustainability landscape and acting on those issues which are of highest priority to the business. This enables business decisions and investments in the right areas, whilst ensuring a company’s approach to sustainability meets (or even exceeds) stakeholder expectations.
Based on our experience, here we provide 5 guiding principles which will ensure you are making the most of materiality.
1. Internal and external – be as broad as you can
Although it depends on the size and reach of the company, on the whole, the wider you consult the better the insights you’ll glean. Fundamental is to undertake a combination of internal and external engagement. A more formal stakeholder mapping process will uncover some broader – but nonetheless important – societal groups that perhaps previously haven’t been consulted (for example – the general public).
Generally speaking, we would suggest going as wide as you can afford to go. This way you can understand the company’s broader impacts on society – not just a few priority stakeholders.
2. On-going stakeholder feedback
With the rapid pace of socio-economic and environmental change, and similarly evolving expectations of business, it is no longer sufficient to undertake a materiality review every 2-3 years. We would recommend that materiality is refreshed more frequently than in the past, to reflect just how quickly emerging issues can change what is material for a company (to name an obvious recent example – plastics).
Indeed, an annual materiality review may still fall short of business needs, opening up discussion around on-going materiality. One such example is harnessing the power of Artificial Intelligence to enable the continuous monitoring of social, economic and environmental data; from sources such as news, social media, regulations and company reports. This can lead to a more in-depth and informed assessment, highlighting important trends and how issues develop over time.
3. Don’t go in with preconceived ideas
Companies can learn extremely valuable things through the stakeholder engagement process, and it is important not to go in with preconceived ideas or a desired outcome.
Identifying a trusted third-party to ensure your assessment is conducted accurately and the results are evaluated fairly and without bias, is highly recommended. In our experience, stakeholders tend to open up and speak more freely when engaging with a neutral third-party.
4. Context Context Context!
Wouldn’t it be useful if there was a universal agreement about what makes an issue material?
A context-based approach does just this – it suggests the inherent sustainability of activities may be based on the ‘equitable’ allocation of resources. Whilst this may be more clear-cut for natural capitals (Science-Based Targets for example), the allocation of social capitals can be harder to determine. It is here that engaging stakeholders can be very valuable in determining if a company’s impacts are overshooting a sustainable level.
It is notable, for instance, the number of companies which are beginning to integrate the UN Sustainable Development Goals as part of materiality assessments – to provide global context. In our experience, this can be useful in helping a business align its work and accelerate commitments to the global sustainable development agenda, whilst beginning to understand where its impacts lie in the global scheme.
Placing context at the heart is what next-generation strategy and reporting platform, Reporting 3.0, advocate for in their Integral Materiality process. As advocates we recommend this approach for our clients, working to close the context gap.
5. Leverage results for impact
Whilst the insights gathered from your materiality assessment will be important, the real value will lie in how your company uses the data and stakeholder insights to inform strategies. A materiality process is a valuable tool when navigating the complex landscape of stakeholder expectations, risk and opportunities. Used well, it enables businesses to identify hot-button issues, helping them stay ahead of regulations, employee expectations, marketplace trends and emerging global issues.
These insights are a critical building block for strategy, enabling companies to keep up with fast-changing stakeholder expectations and meaningfully respond to stakeholder and business needs.
A further step is to build the highest ranking sustainability risks into mainstream business decisions. Often, these risks are being underestimated in likelihood or impact to business, and therefore don’t officially appear on a company’s risk and opportunity framework. An extensive materiality exercise will help to reposition sustainability and integrate key strategic issues meaningfully into business decisions.