In search of the right topics to include in their sustainability or integrated report, many companies use the materiality principle. The Global Reporting Initiative placed more emphasis on materiality when it last updated its sustainability reporting guidelines. Dutch sustainability magazine P Plus, recently interviewed me about transparency and materiality. Here’s a summarized translation of the Dutch article.
“Materiality analysis shows the depth of understanding of a company about its place in a sustainable future.” Materiality was already part of the GRI Guidelines, but the fourth generation of the guidelines, G4, places much stronger emphasis on it. A materiality analysis weighs the impact of societal issues and the interests of a company’s stakeholders against those of the company. This informs the choices for companies for the focus of their sustainability strategy and reporting. “Leaving the choice of what to report on to the company itself could be quite shaky. They might just report on success stories or things which are easier to report. A report should always be balanced and include the topics that were challenging and that are lagging behind on the objectives.”
“Companies can’t and should not report on everything, on every measure that has ever been created. Reports would be too thick and illegible if everyone reports on everything. The relevant issues really differ per industry. Transparency is important, but it must lead to something. It’s not just about measurement, but also about management of key topics. The reporting process is a great tool in the management process, helping to identify opportunities and threats, as well as forcing an organization to consider its sustainable way forward.”
Showing that you’ve understood which societal issues are important for your business, is the underlying thought of sustainability reporting. Stakeholder engagement is key to understanding the relevant issues. Who are your key stakeholders? What do they consider important? And how does this compare to what you consider important? The interests and questions of stakeholders can be very diverse and may make companies feel like they need report on everything. “It’s important to engage in dialogue with your key stakeholders and really listen to how they see the impact and activities of your organization. Stakeholders provide invaluable insights and input, but in the end, it’s the company’s responsibility to weigh the issues and analyse how they relate to the sustainable future of the company. A subsequent step beyond making the choices for focus in strategy and reporting, is communicating these choices clearly to your stakeholders.”
Integrating sustainability into strategy
“Early on in the report, explain the choices you’ve made, the focus you’re applying, based on the materiality principle. This analysis is the first thing I look for when opening a sustainability or integrated report. This shows how deeply a company has understood its place in society. Some companies really don’t give this enough thought. This usually happens when the sustainability department is far removed from the people determining the business strategy. Only a small percentage of companies really integrate sustainability into strategy.”
The reporting process can support the integration of sustainability and strategy. “It’s not an easy process, but a real journey that gets better every year. With the report, you’re accountable to society. It gives stakeholders the opportunity to challenge a company on its sustainability goals and performance. This doesn’t happen enough just yet. Sustainability and integrated reports aren’t read as much as they could be. Stakeholders can be more alert and engaged, but it starts with the companies publishing more focused, interesting and strategic reports that are shorter and more interesting to read.” The struggle to make choices of what to include in a report – and what not – is something many companies recognize. “Making choices is painful, but if you don’t make them, you lose focus and credibility.”
Professor Nijhof’s reflection on materiality
Nyenrode Business University’s professor sustainable business André Nijhof reflects: “Sustainability is such a broad topic, that organizations run the risk of spreading themselves too thin. Because of that, a sustainability strategy can become too fragmented, so there’s no real progress.”
He considers focus on material topics a sign of maturity, and agrees that this focus is a struggle for most companies. “Companies find it hard to choose. Applying the materiality principle really helps to accelerate the process of integrating sustainability into strategy. You have to be convinced that choices really strengthen strategy and credibility with stakeholders. To companies I’d like to say: accept that you can’t address everything at once. You’ll be stronger if you focus.”
Thank you Jan Bom (the editor of P Plus who allowed me to share this summary), Astrid van Unen (who interviewed me), Anne Hamers (all photo credits go to her) and André Nijhof (for his reflections on the interview). If you’d like to receive a copy of the full interview in Dutch, please send an email to [email protected].
Marjolein Baghuis studied business at Nyenrode and Kellogg and worked for Procter & Gamble, Greenpeace, Synovate and the Global Reporting Initiative before starting her own company Change in Context to support organizations to shape and communicate their sustainability strategy and efforts.