Building a sustainability strategy is a core part of demonstrating your organisation’s commitment to making a difference. The ideal approach will address the four key issues of strategy:
- Where are we now?
- Where do we want to be?
- How do we get there?
- How do we ensure success?
I covered the first part on ‘where are we now’ with a focus on data collection. Good baselines are an essential element in setting future ambitions, but what should that ambition look like?
Materiality matters
The GRI reporting framework contains a required disclosure for materiality. This helps organisations to define, and report on, the issues that are material. Typically, it covers the organisation’s overall mission and competitive strategy, and the concerns expressed directly by stakeholders. However, it can also include the broader societal expectations, and how the organisation influences upstream or downstream entities. The latest standards expect companies to focus reporting on the impact of their operations on the economy, environment and society.1 And while GRI focuses on reporting, the methodology and principles are an excellent basis for building your sustainability roadmap. Looking ahead, trends are for more transparent reporting. Using a robust framework to develop your strategy will pay dividends for future communications.
It’s a lot to consider. So where do you start?
Stakeholder engagement
As you set out on your journey to create a sustainability strategy, you may have an idea of what the outcome will be. After all, you’re the best person to know your business, right? Actually — wrong. Your stakeholders will give you a much more rounded perspective — one that will highlight your strengths, and areas of risk or opportunity. This will help drive your strategy development.2
When talking to stakeholders, you need to explore internal and external feedback. That means gaining insights from employees, management and the board, and suppliers and customers. Depending on your sector, you may also want to include industry associations, media, or governments. Best practice is to work with an external provider to gain the impartiality and openness that comes from third-party-led discussion.
Without structure, discussions can roam far and wide. While having a degree of flexibility is important when talking to stakeholders, it’s essential to have a good guide in place.
Because not every ESG factor will be material to all businesses and sectors, it is essential for both companies and investors to be able to identify and manage those that are.
Boston Consulting Group
Consideration needs to be given to the topics of compliance and legislation, the drivers and trends, emerging risks, sector forecasts or macro-level issues. These can be around economic, environmental, social or governance issues. The organisation’s own drivers might include, for example:
- Product innovation
- Financial performance
- Customer satisfaction
- Cybersecurity
- Environmental compliance
Bigger trends can include the drive for net zero, demand for a circular economy, and ethical supply chains.
Mapping it out
Finally, consider how the responses to the discussions will be ranked, or rated. This will enable the plotting of material issues, giving you a matrix from which to start. Nestle, Airbus and ING all have good examples of materiality matrices.
The most important issues will gravitate to the top right quadrant of your results, giving you a clear indication of what’s important, and where the impacts lie. From here, you need to consider the level of ambition, speed of progress, and (potential) investment that is right for your business. A high level vision can be developed, for example, to be net zero by 2040, or to reduce corporate emissions by 80% by 2025.
The data that you gathered when setting out will give you a sense of the level of work required to reach your goal, or indeed, if you need to re-evaluate the data you collect, based on the outcome of the materiality assessment.
Keeping up with the Joneses
One option at the strategy development stage is to benchmark your ambition and current position against peers and competitors. It can provide an insight into how your industry is addressing the material issues that you share, and whether you’re a laggard, fast follower, or leader. It can also help to create a compelling argument for executive support for the sustainability strategy.
A strong roadmap
Materiality can take time when first undertaken — but it’s a fundamental element to understand and develop a robust sustainability strategy. Best practice suggests revisiting material issues every couple of years, as trends and drivers evolve and emerge.
It’s a useful tool to gain insight on the likely future risks and opportunities for your business. After all, materiality is rooted in financial accounting. And can you afford not to be sustainable?
In the next post we’ll talk about how the high-level ambition breaks down into goals, targets and KPIs, and how to embed it into the business.
REFERENCES
- Materiality, GRI 101: Foundation 2016
- Bell, M, 2018, How materiality can help reporting meet the demands of investors, EY
