Dynamic materiality

‍‘Sense-maker’ in chief: Expect the unexpected (and do it proactively vs. reactively) is the post-Covid-19, new mantra for ESG Leaders.

Leaders believe that every company and industry has a unique materiality signature that evolves over time. Proactive management of material issues enabled 1) competitive advantage, 2) an opportunity to understand and shape the issues; and 3) a window to reduce the value at stake from the material issue.

However, ESG leaders find justifying a rigorous process and focus to be difficult for 3 main reasons:

1. Materiality definitions differ across standards (e.g., SASB, GRI, IIRC, etc.)
2. Many diverging materiality processes (e.g., internal, AA1000, GRI 4 steps, IFRS 4 steps, SASB 5 factor test, etc.).
3. Issues and trends are in a state of constant flux and an annual X – Y axis matrix plotting lacked a commonly accepted logic.

And once a process is settled on, three further factors complicate the materiality assessment itself:

1. Topic convergence. Increasingly the convergence of topics is proving a challenge to identify, understand and adapt to. Examples include:
2. Climate + environmental justice + social issues
3. More vocal climate activism
4. Racial justice, equity, and the inclusion agenda
5. Refresh latency. The semi/ annual definition of materiality factors, despite issues and trends being in a constant state of flux and the sometimes ad-hoc reliance on BUs to report issues up the line.
6. Technology bottlenecks. The existing state of their scanning technology is not ‘fit for ESG purpose’ and unable to deliver the real time view demanded by both their board and the ESG investment and data ecosystem.

Help is now at hand!

These insights come from a global listening tour over 25 countries, 75 companies and 98 ESG leaders, sustainability professionals, chief risk officers, chief sustainability officers and strategy heads.

Download the New ESG Playbook here.

Forget CSR. ESG leaders agree unanimously that unlike ‘CSR’ predecessors (historically more likely to be ‘bolted on vs. baked in’ initiatives), ESG is driving a fundamental change to the business at every level. The tipping point has been the pace, volume, complexity and magnitude of external change in investment resources, policy and consumer and employee preference.

However, the sheer volume of expert, media, academic and business coverage on ESG can be daunting to non-initiates.

Feel the force. ESG leaders find explaining ESG internally as a set of positive forces (vs. mere risk mitigation) is beneficial. Forces include:

• Investor funds
• Consumer perception and preference
• Employee attraction and motivation
• Government requirement
• Simply good business practice
• Reduced risk (litigation, volatility, etc.)
• …

It’s a competition for ‘white space’. Sustainability may be the biggest story telling opportunity for the next decade. Yet with everyone now pushing an ESG narrative, it is a competitive play (for investment, employees, NGO leniency, policy neutrality, media share, consumer preference, etc.) and finding narrative ‘white space’ is difficult.

And Data led. Weaving together an inspiring, clear and coherent ‘value creation and loss prevention’ company-wide narrative is considered far from a solved problem. ESG leaders stress the need for a scientific and data driven approach to dynamically shape the ESG narrative.

This needs to support:

1. Real-time ‘sense making’ of external signals;
2. Benchmarking of peer group and sector narratives and initiatives;
3. An adaptive and dynamic mapping of the key themes, keywords, and phrases.

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