First of all, what is “Materiality” and why are corporations assessing it separately within their Corporate Social Responsibility (CSR) and financial reports? As taken from SustainAbility, “materiality assessments provide a tool for prioritizing. A materiality assessment helps a company make sense of the sustainability landscape and build a powerful mandate for focusing and acting on those issues that are highest priority for the business.” The benefits of carrying out a materiality or issue assessment include:
- Focusing efforts to better allocate limited resources
- Integrating sustainability issues into the core business strategy
- Satisfying stakeholder & investor demands
- Anticipating emerging issues
- Meeting sustainability reporting expectations
- Strengthening sustainability communications
- Providing a basis for development of performance measures
Materiality is a strategic tool that looks at the different areas of an organization based on its internal impact versus its impact on other stakeholders including society. To assess a company’s materiality, the first step is to create a materiality matrix. The matrix is used to rate the importance of each component on a X and Y axis scale. Here is the materiality matrix for Nestlé:
In this example, Nestlé used a materiality assessment as a way to identify what is important to their company going forward. What do they want the headlines to say about them in 5 to 10 years? What do they want to report to their shareholders?
Last Tuesday, Boston Area Sustainability Group (BASG) hosted a discussion on materiality. Speakers included Asheen Phansey, the Corporate Sustainability Leader at Dassault Systèmes, and Alyssa Caddle, the Consultant Program Manager at Dell, Inc. Most people in the room had some background in materiality assessments and stakeholder engagement. I learned a great deal on the subject, which sparked my ideas on how to achieve corporate sustainability on a large scale. Here are my takeaways from the event:
- The main function of a materiality assessment, in the eyes of corporations, is to mitigate risk and identify opportunities, whether or not that comes from internal or external factors.
- Third parties typically conduct materiality assessments, but it isn’t always necessary to have someone outside your company do them. Although, any conflict of interest may erode the validity of the results.
- In doing a materiality assessment, one should talk about the line items in a meaningful way that promotes good business at the core. Sustainability will be best achieved through a painless process with all the stakeholders on board. Look at it from the business perspective first, and use colloquial terms to allow them to see the connection to their organization’s core principals and goals.
- In considering environmental impacts or impacts in general, you need to assess the whole package. Not just what meets the eye. For product design software company, Dassault Systèmes, this would include the market share of the products that they worked on for other companies. What is material to Dassault is how their customers use their software, and how they can do better things for society and the environment with that software.
- Materiality is suppose to measure what matters to the world, and not just the corporation.
- When evaluating potential solutions to mitigate risks, there is still the issue of balancing what is right with what is equitable.
- Experienced professionals concur that materiality assessments are oftentimes non-conclusive, and don’t immediately stem change.
In conclusion, I can see how materiality assessments are a tool for companies to reduce their waste and environmental impact all the way up the value chain. It is a matter of having the willingness to take action, and embracing change from a business perspective. For a young consultant, such as myself, it is a matter of understanding the stakeholder interests and working together with them on a transparent level.