Welcome to Framework:CR’s five-part blog series on materiality analysis! In this series, we’ll explore
- what is materiality analysis,
- how it can help companies establish a sustainable business strategy and a solid foundation for reporting,
- how you can shape materiality guidance currently being developed by the Global Reporting Initiative (Hurry! The comment period ends September 22, 2010!)
- why stakeholder input is an essential component of materiality analysis, and
- how you can kick off a materiality analysis process at your company.
In the first installment of our five-part series, we discuss what a materiality analysis is and how it informs the development of sustainable business strategy.
Many companies seeking to establish a sustainable business model quickly realize that the path to a coherent strategy is rocky and steep. While there are established methods for assessing the financial value and risk of traditional operational elements, these processes mostly fail to consider the full range of social, environmental, and economic impacts—positive and negative—that result from company operations. These narrow parameters, based only on traditional financial considerations, limit a company’s ability to set informed objectives, goals, and targets to achieve sustainable business success.
Enter materiality analysis.
A “material issue” is commonly understood in the financial industry as a factor that can have a significant financial impact on the company. These issues thus need to be disclosed to shareholders and addressed within the strategic planning process.
The concept of “materiality” for sustainable strategic planning enlarges the analysis to those issues that have significant environmental or social impacts—as understood by the company AND its stakeholders. A materiality analysis, then, is an ordered, rigorous evaluation of the sustainability issues significant to the company and its stakeholders that informs strategic direction as well as reporting focus.
For example, Symantec Corporation identified Securing Information (encompassing online safety, data protection and privacy, and cybercrime prevention) as a material issue. This issue is of high importance to company stakeholders as it touches upon human rights and other social concerns, as well as the tremendous costs of online piracy and illegal internet activity. Strong performance with regard to securing information is also a priority for Symantec (in terms of company impact), highlighted by the company’s brand promise “to enable confidence in a connected world”.
Below are additional examples of how leading companies are applying materiality analyses to sustainable strategic planning and reporting:
“In preparation for our inaugural 2008 Corporate Responsibility Report and again for the development of this, our second full report, we undertook a materiality analysis to identify and prioritize issues. “Material” means the issues are of high concern to our stakeholders and also of high strategic relevance to Symantec—and are therefore at the core of our corporate responsibility approach and communications.”
“We have used [the materiality] analysis to identify issues to cover in our reporting and as an input to our sustainability strategy development.”
“We use a formal process to help us identify the most material (relevant and significant) corporate responsibility issues to our business and stakeholders. We take a range of issues that our stakeholders said were important during the year and assess how significant they are to BT. This helps us focus our reporting in the right areas and to create a short printed review focused on the most strategically important issues.”
For a complete overview of the materiality analysis concept and its application, listen to a recording of Aleksandra Dobkowski-Joy, Principal at Framework:CR, presenting on a Net Impact Issues in Depth Call: “From Stakeholders to Strategy: Using Materiality Analysis to Guide Sustainability Strategy and Communications” (Recorded April 23, 2010)*
*This call recording has been opened to both members and nonmembers by gracious consent of Net Impact.