This is the first in a series of articles on getting the most out of sustainability materiality analyses.

The new Global Reporting Initiative (GRI) guidelines are paying more attention to materiality assessments as the foundation for determining the scope and content of sustainability reports. That’s a good thing. The GRI still devotes the majority of its new G4 guidelines to a long list of sustainability performance indicators that it has determined are the scope of a proper sustainability program. But with 91 indicators across six categories in the G4 guidelines, it’s very easy to get lost when attempting to address those indicators. That can lead to wasted time and effort in collecting data and communicating about issues that are not terribly material. That routine exercise, if approached in an unfocused way, can detach you from some of the founding principles of the sustainability movement:

• Engage your stakeholders
• Understand your impacts
• Determine what’s important to you
• Find compelling and innovative ways to add value to your business, your value chain partners, and society

It can also keep you from defining new indicators needed to understand the impact of the most innovative collaborative efforts.

High Value Initiatives

Aside from helping you decide what to dedicate space to in your sustainability report, going through the exercise of a well-planned and executed materiality assessment can add new purpose and structure to external and internal engagement initiatives, encourage new levels of collaboration within your sustainability team, and can be the backbone and validation of your sustainability strategy. In short, the materiality analysis can be a source of unique insight that leads to truly differentiating initiatives and signature programs.

What is a Materiality Assessment?

Although this is not the GRI model, materiality assessments frequently identify an organization’s most relevant sustainability issues and plot them on a matrix that considers both significance to the business and importance to stakeholders. In this way, the materiality assessment is a prioritization tool that incorporates internal and external perspectives. In addition, the G4 guidelines require issues to be addressed from a value chain perspective. So results may look something like this:

To develop this type of materiality assessment most effectively, an organization will need to conduct both research and earnest engagement with internal and external stakeholders. This process takes time, but it is through the focused discussions and research that new ideas and approaches are often identified and developed.

Capturing the Value of Materiality Assessments

To capture the value of materiality assessments, organizations should do the following:

1. Tap into the Value of External Engagement

Your customers’ supply chain requirements and surveys, press releases, sustainability policies and reports, and even short and long term strategies can be negotiated settlements. Getting your key stakeholders’ decision makers involved in intimate (i.e., involving very few people) conversations about their concerns, drivers, future focus, needs, etc. can lead to unique insights. It can also lead to relationships with new people and partnership opportunities (including exclusive business opportunities) that you may not have had access to otherwise. Decision makers are hard to pin down but once you have an hour and a good but flexible agenda with carefully selected stakeholders, the conversations can be very productive.

2. Tap into the Value of Internal Engagement

The materiality assessment provides a great excuse to set up conversations with functional leaders to discuss sustainability. Leaders typically appreciate the opportunity to focus attention on the variety of sustainability issues that their function or areas face, particularly talking through the potential business impacts and implications with people knowledgeable on trends, emerging issues, and competitor activity. There is usually fresh insight to be gained from discussions on what their own stakeholders are saying and asking. A great conversation leads not only to the expected insight into the business implications of sustainability issues, but could also lead to a roadmap for more effective cross functional collaboration, a list of potential new champions for innovative initiatives, and even the removal of some obstacles to existing initiatives.

3. Tap into the Value-generating Potential of your Sustainability Team

Full and formal or project-specific sustainability teams, especially if they consist of representatives from different functions, are more used to doing things for each other than doing things with each other. But the complexity of some of today’s most challenging issues (e.g., supply chain performance, Scope 3 greenhouse gas emissions, life-cycle based product stewardship, ethical marketing), require functions to collaborate and establish shared goals for collective impact if they are to be successful. They may not be used to or appreciate co-ownership, and that can be uncomfortable to say the least. Collaborative leadership is harder than collaboration. A very inclusive materiality assessment process by its nature provides opportunities for functional representatives to learn from each other as they find new opportunities to work together, or challenge each other in productive ways. By going through the materiality assessment, participants have the opportunity to respond to a collaborative learning experience rather than simply reacting to the work done by others.

4. Create an Invaluable Tool for Strategic Planning

The language in G4 and some articles in response to it focus on the materiality assessment as something used solely to determine the scope and content of a sustainability report. The implication is that a company undertakes this exercise, involves all these minds, and then tosses the thing aside as a tool that’s served its one purpose; perhaps to be dusted off and revisited in a year or so. That is a mistake. The materiality assessment contains the seeds to a more thoughtful, focused, and impactful sustainability strategy with a greater potential for real innovation, and consequently even stronger follow-up sustainability reporting. That’s because of the more active internal and external engagement that produced it. Rarely does game-changing innovation flow from isolated silos of professionals; it comes from active learners working in sometimes unlikely partnerships.

Not Just for Advanced Programs

But all this is not to say that a good materiality assessment only has value for those wanting to change the world or redefine the way they understand and add value to society. Small or medium-sized companies with unique offerings in niche industries can all find value in a materiality assessment process that points them to differentiating approaches to sustainability or even to how they do business or understand their business model. Maybe there is little value in them knowing the carbon footprint of their 12 suppliers; but there might be great value in them finding a uniquely more sustainable offering with some clever co-marketing opportunities. Companies of any size that are just starting to understand their sustainability impacts in order to hammer out a new strategy can especially benefit from the materiality assessment as a focusing exercise in challenging economic times.

About the Author

Elsie Rivera Palabrica is a senior sustainability consultant at Environmental Resources Management (ERM). She has more than twenty years of development and leadership experience in global and full scope sustainability performance management, including strategic planning, policy and standards, communications, benchmarking, and trend reporting. She has developed global programs for multinational companies addressing management systems, performance indicators, and performance assurance and auditing. She spent fourteen years with Abbott Laboratories leading a variety of high profile sustainability initiatives. Elsie also worked for Amoco (now BP), where she held various engineering positions — designing, developing global engineering standards, and managing environmental remediation efforts. She serves on the Board of Directors of Keep Indianapolis Beautiful and previously served on the Board of Directors of the ERM Foundation – North America.

Photograph: Street View by Kostya Kisleyko, Moscow, Russia.

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