How to Choose a Materiality Approach to Sustainability


We're right in the middle of participating in the SASB Industry Working Group for Non-Renewable Resources. Basically, that means we're poring over information (and adding our own opinions) about what sustainability issues should be considered "material" for mining companies--that is, what sustainability issues they should be required to publicly report along with their financial information.

The process has gotten us thinking a lot about the concept of materiality--how it is defined, how it is applied, how it is measured, and how it is reported. And lucky for all of us, a great article in Green Biz offers a great parsing of the issue:

Three influential reporting initiatives are each betting their future on the all-important materiality principle -- the idea that companies should focus their strategy and reporting on the most relevant sustainability challenges and opportunities.

The problem for companies is that each initiative is putting forward a potentially incompatible definition of materiality.

The three organizations -- the International Integrated Reporting Council (IIRC), the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI)-- diverge in their approaches based on which stakeholder group they focus their initiative on.

Here’s the lineup.

• The IIRC, which is betting that investors will broaden their analytical horizons, proposes a framework that seeks to integrate financial and nonfinancial reporting by taking a broader and longer-term view on how value is created.

• The SASB, meanwhile, is betting that regulators will broaden their interpretations of materiality and is creating standards on how publicly-listed U.S. companies should disclose material sustainability issues for investors in mandatory filings to the Securities and Exchange Commission (SEC), such as the Form 10-K and 20-F.

• And the GRI, the traditional authority for sustainability reporters, is betting that stakeholders should have an equal say in sustainability reporting, since reports are used by multiple audiences.

Given these potentially mixed messages, what is a company to do? Reporters thinking they must complete three separate reports can take heart: There are three (ok, maybe four) fairly straightforward paths, and an opportunity to shape the future of reporting.

-- Navigating Materiality,

The article goes on to provide a fantastic exploration of how the three standards compare in their definition of materiality, and the options that companies have in choosing to apply one (or more) of these approaches to their own sustainability reporting process.

Which one is right? It depends on a number of factors, including whether you are a publicly-traded company (or a private business or non-profit organization), your size and scope of reporting, your level of stakeholder engagement maturity, your overall sustainability goals, and your long-term sustainability strategy. We walk clients through each of these areas to determine the best fit for them--and we are currently finding that most clients are choosing to stick with the GRI for now, while keeping a close eye on IIRC and SASB, which will come into play more in the next 2-5 years. 

Interested in talking with us about which materiality approach is right for your organization? Contact us for a complimentary consultation. Not ready to call? Check out our free white papers, including topics like sustainability reporting.