So, You’ve Finished Your Materiality Exercise. Now What?

Authors

• Guy Morgan

  Former Director, Advisory Services, BSR

Over the past year, companies across sectors and geographies haves embraced the materiality approach to identify which sustainability issues are most important to their business success and key stakeholders. The guidance provided by frameworks such as SASB, GRI, and the IIRC has played an important role in this flurry of activity. We’ve seen companies taking ever more detailed approaches to their materiality processes, thinking through additional dimensions such as their ability to influence each material issue and how the importance of an issue is likely to change over time.

For many companies, the question now is, “What’s next?” How should a company use the results from a materiality exercise to define strategy and a clear path forward across its operations?

This is where things get interesting, since materiality is really the first step in helping define a strategy that resonates across a company’s global operations.

We see companies taking each of their material issues and determining what exactly makes them relevant. Does it pose a risk to business operations? Does it present an opportunity for the product portfolio? For example, will the creation of greener products increase market share and, if so, by how much?

The questions don’t stop there. If the issue’s a risk to operations, how well is the company currently managing the risk? Are the right policies, processes, and internal trainings in place to manage the risk appropriately? If the management system is already robust enough, you are unlikely to change your strategy, but you will continue to monitor (but not increase) your investment. If you find gaps, your goals should be more ambitious. In this age of what former IBM CEO Sam Palmisano called “the globally integrated enterprise,” we also see our members wrestling with how to create a global strategy that resonates locally, and how much “freedom” to allow within their framework.

The answer to these questions requires a level of rigor that can be gained through a mixture of in-depth internal and external assessments. To help find a potential opportunity in the market, for instance, it’s useful to benchmark competitors in terms of how they are positioning themselves on material issues. But it also requires companies to interpret both hard and soft signals in the marketplace by reaching out to those same stakeholders who helped define material issues for the company in the first place.

Finally, making materiality resonate across your global operations necessitates internal engagement across functions, business units, and geographies to help drive buy-in and help generate additional insights so that the global direction is infused with local realities. Indeed, this level of rigor is essential if your sustainability strategy is to touch on fundamental business value drivers like growth, return on capital, risk management, and management quality.

If you get the strategy right, your employees around the world will have something clear and concise to rally around and communicate externally. And to think, it all started with materiality.