CSR and the importance of materiality in Sustainability Reports

Sustainability reporting is a growing trend amongst India’s top companies. Some reports follow international standards for sustainability and CSR reporting such as the Global Reporting Initiative (GRI), many others don’t really adhere to any set norm. Either way, our ongoing research has revealed that most reports look glossy and talk about a company’s success in implementing CSR activities. Some though also talk about things that may have no context to CSR or sustainability.

Whatever the reason, plastic in product packaging, sustainable sourcing, renewable sources of energy, supply chain emissions, water impact studies and things that impact customer safety and health seldom find place in Indian sustainability reports. But, are they really relevant or in sustainability terms, ‘material’? How do we decide?

GRI mandates a disclosure of material topics for a reporting organization should include those topics that have a direct or indirect impact on an organization’s ability to create, preserve or erode economic, environmental and social value for itself, its stakeholders and society at large.

The key elements of materiality are the ones that

  • impact the organisation
  • preserve or erode the company’s  economic or social value
  • and are measurable

Materiality issues are mostly context and industry specific. Across industries  materiality issues would include waste disposal, bio-diversity, energy efficiency, responsible procurement, carbon emission, water, employee diversity, gender equality among many others. But others such as employee motivation strategies, gathering customer feedback or product launches have no place in sustainability reporting.

Apart from being important for mandated disclosure under GRI standards, materiality measurement helps companies in engaging in a meaningful manner with the society and environment.

So, how do we figure out what is material to the company?  The following process enables a company to arrive at materiality issues:

1.      Define purpose and scope

What do you want to achieve? Define your scope across the stakeholders – procurement, supplier, logistics, buyer, communities, etc.

2.     Identify potential themes

Brainstorm to identify themes This will give you an opportunity to go beyond the obvious

3.      Categorize

Group similar themes so that focus areas can be developed. Certain themes that do not fit into the scheme of things or are not material will get dropped out.

4.      Seek stakeholder feedback

Are the areas that you seek to improve valuable and feasible from the stakeholder’s perspective? Use this to refine the issues.

5.      Gain management buy-in

Without the management buy-in both funding and enthusiasm for the action plan will be missing.

6.      Prioritize

Decide the priority of your issues that you wish to engage in.

This provides a starting point for companies to figure out areas where they should be engaged and provides a roadmap that will enable a company achieve its societal objectives. For instance, companies may map materiality on two axes interest of stakeholders and impact over management. This is depicted below where A, B, C etc. are materiality issues for the company:

matrix

In India there Is a mandate for companies to spend 2% of their net profits on CSR activities. A list of focus areas are set out where companies can invest the said amount. When looking at alternatives it is worthwhile to also look at the mandated areas as part of the materiality scope.

Article coauthored with Utkarsh Majmudar and originally published in Economic Times.

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