I was fortunate enough this week to be invited to an industry sustainability think tank, hosted by the Climate Change and Sustainability Services team at EY in Melbourne.
The topic of the think tank session was sustainability materiality. Quite a pertinent topic for me as I lead the Aveng Group through the development of the sustainability pillar of the new Corporate Strategy.
The sustainability materiality process is really quite a fundamental one in:
- Understanding priorities where everything, or a good number of things at least, seem to be priorities – prioritising the priorities!
- Creating and implementing focussed, efficient and effective strategic initiatives.
- Defining what to measure as performance indicators for those strategic initiatives.
- Determining what is disclosed in the public arena and how to some extent.
Given that the materiality process is an important foundation step in a robust strategic plan, I was very keen to head along and the session certainly provided some new insights and food for thought on sustainability materiality approaches. Attendance was a good size for initiating discussion and networking (a similar events was run by EY in Brisbane last week and in Sydney today), with a very good cross section of sectors represented (including retail, automotive, mining, legal, education, transport and academia to name but a few) and experience levels from Graduates through to Board Directors.
The scene was set with an overview of the current state of sustainability materiality processes, and its importance for business and investors. Our attentions were drawn to a recent letter from BlackRock CEO Larry Fink to the CEOs of the S&P500 (BlackRock being arguably the world’s largest investment manager), discussing the importance placed by BlackRock in looking for and scrutinising the long-term prospects and sustainability, in every sense of the word, in its investments:
As BlackRock engages with your company this year, we will be looking to see how your strategic framework reflects and recognizes the impact of the past year’s changes in the global environment. How have these changes impacted your strategy and how do you plan to pivot, if necessary, in light of the new world in which you are operating?
…..
Environmental, social, and governance (ESG) factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects. We look to see that a company is attuned to the key factors that contribute to long-term growth: sustainability of the business model and its operations, attention to external and environmental factors that could impact the company, and recognition of the company’s role as a member of the communities in which it operates. A global company needs to be local in every single one of its markets.
https://www.blackrock.com/corporate/en-au/investor-relations/larry-fink-ceo-letter
When the CEO of the globe’s largest investment manager is saying these things one begins to realise that progress is being made re understanding and integration of sustainability concerns, and that the wider business world would do wisely to take note!
Following that we were treated to the Global Reporting Initiative’s (GRI’s) perspective on sustainability materiality and how it plays out in the GRI standards, by Dr Robyn Leeson, Vice-Chair of the Global Standards Sustainability Board (GSSB). The transition from GRI G4 Guidelines to GRI Sustainability Reporting Standards (GRI Standards) towards the end of 2016 has moved towards a standardised approach to describing the key impacts (materiality) of business on environment, the economy and society and moved towards increasing accountability also. This is impact on sustainable development from a business not consequences for the organisation itself. This definition was purposefully written in this way.
If you fancy listening to the GSSB Board Meeting on this specific discussion (they record them and release publicly) follow this link and head to the 30 minute mark: https://www.youtube.com/watch?v=gEoWRg2CBR4
This was then followed by an engaging roundtable session, split between three tables, each table discussing one of three topics:
- Integrating materiality and risk
- Engaging stakeholders along the value chain
- Understanding business impact
The table I was sitting at was discussing the first on the list – integrating materiality and risk. Chatham House rules prevents me from disclosing too much detail, but some of the key points and questions raised and themes arising from the discussion were:
- Should materiality and risk be integrated? Are they part of the same process or are they two process that need to happen separately and then come together?
- If starting from a relatively low baseline with respect to integration of sustainability into strategic planning offers a great opportunity to integrate the materiality and risk processes.
- Not treating risk as a siloed discipline within an organisation potentially also offers an opportunity to better integrate materiality and risk.
- There is a development in certain sectors and leading organisations to include a third dimension in materiality assessments or matrices with regard to the impact of material on sustainable development. This may be represented with a colour coding or differing size bubbles on the materiality matrix.
- There may be a cultural and mindset shift within organisations and across entire sectors, in some cases, in terms of looking at materiality with an external facing lens (i.e. what is our impact on the world and progress towards sustainable development) in addition to an internal lens (i.e. what are the implications for the business).
Food for thought, and very helpful indeed, as I progress with my work with Aveng Group. Watch this space!
Nicole Neal Sustainability 