Materiality: from fundamentals to mastery

Thomas Milburn

We are very good at making things complicated in all aspects of life. It is only natural that as our understanding of something grows, we add layers new information. This is progress. As materiality has become a more important part of the corporate sustainability agenda, it too has become increasingly complex. But it is important not to get lost in the complexity which lies between a basic understanding and mastery. For practitioners, it is easy to be confused by the complicated detail and just focus on the latest hoop that has been placed in front of us to jump through. Let’s, for a moment though, strip away the jargon and the box ticking, and get back to basics.

Materiality means identifying what really matters to the long term success of a business as well as its stakeholders. In an era which has been defined by the need for transparency and where there are a number of issues vying for attention in company boardrooms, the understanding which materiality provides is important, whether the process to determine it is flown under the flag of materiality or not. It helps companies to:

1. Develop a resilient business strategy which has incorporated environmental, social and governance (ESG) risks and opportunities, having gathered 360 degree perspective on the company’s operating context.

2. Make decisions on what information is important to disclose to stakeholders and how to communicate this information.

These two points should form the basic driving purpose behind materiality. Unfortunately, for large companies with diverse business portfolios, complex global supply chains and multiple stakeholders, this is where the simplicity ends. And unfortunately, you can’t become a master of materiality just from reading the latest Global Reporting Initiative (GRI) G4 Sustainability Reporting Guidelines. Like many things, you only get good at applying the principle of materiality from practice. You need the tacit knowledge that comes from having worked through the practicalities of having gone through the process, learning what works and what doesn’t for your organisation. If you don’t already have this, then the next best thing is getting people who do to work alongside you.

Whatever path you take on the journey to mastering materiality, it is unavoidable that you will at some point get lost in all its complexity and despair. At times like this, it is important to connect and organise everything that you learn, theoretical and practical, to the fundamental purpose behind materiality. This will keep you on the path to developing something that adds value for both strategy and reporting.

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