What's 'Material' When It Comes to Sustainability in Business?

It's somewhat opaque and may not roll off the tongue, but “materiality” is an issue of growing importance in corporate boardrooms and executive suites, as well as among shareholder interest groups. As is the case when any new concept insinuates itself into the lexicon of business management, agreeing on what exactly “materiality” means is a prerequisite for crafting and justifying policies that address the issue of sustainability in business.

As its root word, material, suggests, materiality is commonly defined as any attribute or factor that is relevant and substantial to the overall performance, results and viability of a business. With the emergence of the fossil fuel divestment movement, investing in fossil fuel companies, for instance, has risen to become “material” for a growing number of shareholder groups and investors, as well as corporate boards and executives of private- and public-sector organizations.

However, does materiality mean the same thing to investors as it does to other stakeholders? That's the question GRI (Global Reporting Initiative) and RobecoSAM – pioneers in the field of sustainability standards development, reporting and investing – teamed up to answer. 

Surveying corporate managers and investors to assess "materiality"

In Defining Materiality: What Matters to Reporters and Investors, the research partners compare real-world examples and “the results of the processes of GRI reporters implement to identify material topics to the perspectives of stakeholders and investors, as provided by RobecoSAM.”

In their inaugural report, GRI and RobecoSAM analyzed data from two industry sectors: technology hardware & equipment and banks & diverse financials. Based on GRI reports and the investor assessments of materiality conducted by RobecoSAM, the research report “revealed an overall high degree of overlap between the topics reporting organizations consider material and those considered material by investors,” GRI summarizes in a news release.

The GRI reports and RobecoSAM investor assessments of materiality encompass 391 topics in total. Of those, 269 fell into sustainability categories and sub-categories already established by GRI. Twenty-eight percent – the highest percentage – fell into GRI's environmental category. Another 122 were classified as “other sustainability topics.” The second most cited materiality factors (19 percent) fell into the GRI sub-category “labor practices and decent work.” Those that fell into GRI's “society” sub-category ranked third.

Among “GRI Aspects” of materiality and sustainability, “emissions, effluents and waste” was the most commonly cited issue. Two other GRI Aspects – “products and services" and “training and education” -- were mentioned in most GRI reports. Issues related to materiality and sustainability in the supply chain was the most commonly cited of the factors that didn't fall into any existing GRI category or aspect. Ethics ranked second.

Aspects of "materiality" and sustainability in business

To analyze the research results, GRI and RobecoSAM identified and prioritized 13 "financially material sustainability issues.” Innovation management, supply chain management, corporate governance and human capital management were the four most commonly cited factors across the “technology hardware & equipment” and “banks & diverse financials” sectoral GRI reports and RobecoSAM investor assessments.

Environmental enabling, privacy protection and data security, and digital inclusion/social enabling were the three most commonly cited factors specific to the technology hardware and equipment sector. Of the eight material sustainability issues cited in banks and diverse financials GRI reports, four were deemed of greatest importance: Risk management, corporate governance, human capital management and business ethics.

Nearly half (48 percent) included a list of material GRI Aspects, GRI highlights. Nearly all – 98 percent – of those “included a description of the stakeholder engagement process, and the same percentage used to define material Aspects and other sustainability topics,” the authors elaborate in the report's executive summary.

“This research indicates that despite lingering concerns in the market about different definitions, there seems to be a common understanding of the concept of materiality and the similarities exceed the differences,” GRI Director of Services Ásthildur Hjaltadóttir commented. “By conducting stakeholder engagement as outlined in the GRI Guidelines reporters can communicate effectively to investors as well as their other stakeholder groups.”

*Image credits: "Defining Materiality: What Matters to Reporters and Investors," GRI, RobecoSAM