The Materiality Bridge

Last year, Framework launched a research initiative to track the use of materiality analysis in public disclosures of companies named as leaders in sustainable business practice.

Using CR Magazine’s 100 Best Corporate Citizens list as our sample set, we dug through sustainability reports and 10-K financial filings to see what role materiality analysis played in corporate sustainability disclosures and strategic planning.

Our original findings, based on the 2010 CR 100 Best Corporate Citizens list, are fully described in a five-part blog series posted to our site in April 2011. In summary, we discovered that despite the perceived strategic advantages of using materiality analysis to align sustainability efforts to stakeholder concerns and business opportunities, only 43 companies on the 100 Best list used this tool. Even fewer—25 companies—explicitly used the findings from their materiality analyses to inform disclosures.

On the other hand, we found that about a quarter of the companies surveyed addressed sustainability issues within the risk factors or narrative sections of their 10-K financial filings, a potential harbinger of more integrated financial and sustainability reporting.

Fast forward one year.
Between June 15 and August 15, 2011, we replicated our materiality research using the new 2011 CR Magazine 100 Best Corporate Citizens list. Again we asked:

  • How many companies are conducting materiality analysis to identify priority issues?
  • Is there evidence that companies are applying the results of their materiality analyses to strategy setting and disclosure?
  • Are sustainability issues represented in the companies’ 10-K financial filings?

What we found.
In comparing 2011 to 2010 research results, we saw:
a modest 18% increase in the number of companies conducting a materiality analysis, from 43 companies last year to 51 companies this year.
a significant 64% jump in companies applying the results of their materiality analyses. This year, 41 companies explicitly focused on identified material issues in their sustainability reports and disclosures vs. only 25 companies last year.
a 30% increase in companies that “somewhat” or “to a large degree” incorporate sustainability issues into their 10-K filings.

Download full results and research methodology (PDFs).

What does it mean?
We believe that the upward trending in uptake of materiality analysis is indicative of efforts by companies to span the gap between strategy and sustainability.

By using materiality analysis as a tool for identifying key issues, companies can be more strategic in setting goals and targets, allocating resources and capital, and seizing opportunities to build brand value. Having explicitly defined their sustainability profile, they can focus more on the issues that matter more—to their business and to their stakeholders.

A robust materiality analysis decisively shifts the definition of sustainability from a nice-to-have to sustainability as a strategic imperative. All of a sudden, being a more sustainable company isn’t “responsibility” or “good citizenship”—it’s competitive advantage.

In working with our clients, we’ve marked this change in language and perception. Perhaps it is best embodied in the titles of individuals participating in sustainability reporting and strategic planning projects. In the past, we typically interfaced almost exclusively with sustainability managers, EHS and communications directors. With the focus shifting to material issues, we now witness much more direct involvement from enterprise risk managers, general counsel, investor relations, and C-suite executives.

In our upcoming posts, we’ll explore the use of materiality analysis as a tool for strategic planning and disclosure from the perspectives of corporate practitioners themselves. We’ll also discuss what our findings reveal about the connection between materiality analysis and the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines. In the meantime, we welcome your comments and questions!

By Aleksandra Dobkowski-Joy
This is the first post in a three-part series

See part two: Materiality and the GRI

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One Response to The Materiality Bridge

  1. dear Alesksandra, Thank you for this research and report. I will read the pdf.
    I am an org. development practitioner who specializes in strategic planning and “sustainability.”
    I am always searching for ways my clients can standardize and embed tools like a materiality analyses.
    I am interested if your report highlights any consistent private industry approaches to completing this ‘activity.’ Best regards, Virginia