Insights

A "materiality approach” can address competing stakeholder expectations by assessing what’s most important for your organisation, writes Amanda Nuttall.

How can an organisation be responsive and responsible without falling into the trap of being constantly reactive? How can we meaningfully understand, measure and communicate the long-term sustainable value created by our organisations? And on the other side of the coin, how can we know when and where value is destroyed or diminished as a result of our activities? And who decides what is “value” anyway?

Societal expectations are changing fast, but a materiality process could help you to “manage the mayhem”.

Materiality presents an opportunity for grantmakers and funders to do better with feedback, strategy and transparency in making informed decisions, using a transparent and comprehensive picture of how business models create or destroy value. The analysis technique also accounts for the different expectations for your different stakeholders.

So how does a materiality analysis work? It comes down to understanding that a matter is considered “material” if there is a substantial likelihood the information will affect the decisions of a reasonable person.

A fit-for-purpose materiality analysis is like a filter that can prioritise what information influences the creation of value for your stakeholders, and the issues that would affect people’s decisions.

A materiality matrix, with the impact of issues shown on the x-axis and stakeholder interests displayed on the y-axis.

An analysis requires asking stakeholders what value they think you are creating, who you are creating that value for, what opportunities and risks may potentially impact that value and where you could improve. Stakeholders could include board members, staff, partners, members, customers, funders, donors, government and community members.

A good analysis can be the key to greater transparency and accountability, as well as understanding, communicating and maximising value creation.

Materiality analysis can also guide strategic planning by enabling organisations to identify future trends, new business risks and opportunities that could affect their ability to create medium-term and long-term value.

Being clear about those material topics is also a foundation for defining the content of sustainability and integrated reports and underpins the methods applied in non-financial assurance.

This type of analysis is widely applied by leading sustainability reporters within the business sector, but also presents opportunities for the public and for-purpose sectors.

Stakeholders expect that for-purpose organisations can demonstrate that they are operating effectively and efficiently in accordance with their stated missions, providing accountability to stakeholders and offering value for the money invested by donors and funders. Similarly, government agencies and entities are using materiality analyses to inform their public disclosures and demonstrate accountability to stakeholders. As an example, government owned entities such as Main Roads Western Australia and Landcorp, apply a materiality process to define the content of their Annual / Sustainability reports.

Materiality is also a useful process to map against international actions such as the UN sustainable development goals (SDGs). The Australian Women’s Donor Network recently noted the work that needs to be done to achieve the bold ambitions of the SDGs by 2030 and the key role that increased philanthropic investment can play. A materiality analysis is a complementary tool to guide decision making in this space. Many corporates are already incorporating SDG mapping into their materiality assessments, and government agencies and NGOs are beginning to following suit. The City of Melbourne recently used a materiality filter when mapping its strategies and plans against the global targets of the SDGs.

Think Impact uses the International <IR> Framework (Integrated Reporting), GRI (Global Reporting Initiative) Standard, AccountAbility’s five-part test and SASB’s (Sustainability Accounting Standards Board) materiality maps to create a “materiality matrix”. To learn more and all enquires please contact Think Impact Director, Amanda Nuttall amanda@thinkimpact.com.au

MORE INFORMATION

Comment: Materiality process moves shifts from art to science (Ethical Corporation)

Greenbiz: The maze of materiality definitions

Energy, sustainability, resources view: Materiality assessment explained

The SDGs: The curse of materiality and the challenge of change

With thanks to the Australian Institute of Grants Management, an enterprise of Our Community, for publishing this article. Read the full version here.