ESG Strategies: Understanding Materiality

“We want to get certified in……”

The most common opening sentence when businesses contact us to develop an ESG strategy is to jump immediately to a certification. Take your pick- Assurance Standards, Principles of Responsible Investment, Gender Based Analysis, Fair Trade, B-Corp. There are a host of certifications and standards out there.

This move to certification as a first step may be due to pressure/standards in a particular industry, a draw to a specific component of ESG (Environment, Social, Governance) that has some personal passion behind it, or even something you admire/aspire to that you see in other verticals. But it’s often because organizations don’t know where to start.

A key component that is missing is materiality.

Materiality is a concept that defines why and how certain issues are important for a company or a business sector.
A material issue can have major impacts on the financial, economic, reputational, and legal aspects of a company, as well as on the system of internal and external stakeholders of that company.

When it comes to materiality in your ESG strategy, there are some key questions to ask;

  1. Understanding: Do we understand what ESG is, and what international movements/frameworks/reporting structures we could consider aligning with?
    • For example, UN’s SDG’s, SASB’s, PRI, CDP, DQ, GRI.
  2. Authenticity: Are we doing this just to keep up with the times or signal our virtue to others?
    • Or are we interested in truly aligning purpose in our work, repairing harm we may have caused, and proactively investing as a force for good in our communities?
    • If your process is hasty, your results will read as inauthentic to your stakeholders. We call this the quality test.
  3. Brand Alignment: What is relevant to our organization?
    • Often what we are interested in, and what aligns with our work and brand are not the same thing, and requires a discovery process and specific tools.
  4. Expectations: What do our teams/people/internal stakeholders expect of us? What would our external stakeholders expect from us?
    • If your ESG strategy is in response to backlash and public discontent, that voice needs to be integrated into the work.
  5. Building From the Foundation: Is this a soundbite for the next communication cycle? Are we committed to create a permanent framework that we will build on year after year?

ESG is not a new concept per se, but the application is for many verticals. Where ESG gets murky is what is required/regulatory, what is voluntary, and what is anticipatory.
Many companies are left in a grey zone of materiality, and it creates a follow the leader/what is your neighbour doing approach.
This is harmful as it fertilizes short sited ESG strategies, falls guilty of engaging in slactivism/virtue signalling which increases reputational risk, and decreases exploratory prototyping, which we know develops best practice.

LARISSA MAXWELL

In materiality, there are two important perspectives; one is stakeholder oriented as it emphasizes the impacts an organization has on the environment and society. The other has a greater focus on an organization, as it is centered on the impacts the environment and society have on the organization.

Determining materiality requires robust assessment, utilization of strategic tools, engagement and oversight, and a commitment to an authentic process. We are convinced third-party involvement is key.

Time and time again we’ve seen that authentic process produces transformational results. Materiality analysis provides insights into future trends and business risks, and uncovers opportunities to create value. Only when we understand what is material for our business can we look at certifications, growing internal and external impact projects, JEDI (Justice, Equity, Diversity, Inclusion) strategies, public reporting and disclosure, and much more.

Are you ready to create or refine your ESG strategy?

We offer a signature ESG framework, which leads your organization through three stages of development, and a signature POLICY-ACTION-INITIATIVE implementation structure. We guide you in determining ROI, so this investment becomes a sustainable function of business. We are also certified in relevant materiality frameworks, including GRI (Global Reporting Initiative), which helps you align your strategy to best practice.

Reach out to us to learn more.

References: Datamaran, 2021, GRI Standards, SASB Reporting Standards

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