How the shift to dynamic materiality is changing the ESG leadership game
‘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:
- Materiality definitions differ across standards (e.g., SASB, GRI, IIRC, etc.)
- Many diverging materiality processes (e.g., internal, AA1000, GRI 4 steps, IFRS 4 steps, SASB 5 factor test, etc.).
- 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:
- Topic convergence. Increasingly the convergence of topics is proving a challenge to identify, understand and adapt to. Examples include:
- Climate + environmental justice + social issues
- More vocal climate activism
- Racial justice, equity, and the inclusion agenda
- 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.
- 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 McKinsey & Co., and TSC.ai global listening tour over 25 countries, 75 companies and 98 ESG leaders, sustainability professionals, chief risk officers, chief sustainability officers and strategy heads.
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