When It Comes to Sustainability Reporting, What Is Material?

by | Apr 4, 2016

corporate reportingIt’s that time of year again. Time to gather emissions data and other environment-related metrics to prepare corporate sustainability reports and respond to CDP’s, formerly Carbon Disclosure Project’s, annual climate questionnaire.

Luckily for companies, reporting organizations are increasingly streamlining their frameworks and standards. This makes it easier for businesses, which face growing pressure from consumers, investors and other stakeholder to be transparent about their environmental achievements — and shortcomings.

Thousands of companies use the Global Reporting Initiative’s sustainability reporting guidelines in preparing their annual reports and also respond to CDP’s climate questionnaire every year. In an effort to help companies report on their climate-related impacts and avoid duplicating their disclosure efforts, GRI and CDP last month released their latest linkage guidance, showing how GRI’s G4 Guidelines and CDP’s climate change questions are aligned.

Just last week, eight of the world’s biggest names in corporate reporting including CDP and GRI published a comparison of materiality definitions and approaches. The eight organizations — CDP, GRI, Climate Disclosure Standards Board, Financial Accounting Standards Board, International Accounting Standards Board, International Integrated Reporting Council, International Organization for Standardization and Sustainability Accounting Standards Board — “share a mutual interest in clarifying reporting concepts,” according to a statement. To this end, they formed the Corporate Reporting Dialogue, which aims for greater coherence and consistency between corporate reporting frameworks and standards.

The newly published Statement of Common Principles on Materiality furthers this goal by clarifying the concept of materiality, or what issues are most important to stakeholders and the businesses themselves. While it’s not possible to establish a ‘”one size fits all” definition of materiality — for example, in many countries it is a legal concept — this publication helps align the various reporting requirements related to materiality, says Huguette Labelle, chair of the Corporate Reporting Dialogue.

Many organizations find it challenging to navigate the range of materiality definitions. It’s a crucial concept for businesses, because knowing what is material allows firms to “produce concise reports that provide the readers with relevant information; it enables them to focus on what really drives value creation and performance important for business,” explains Susanne Stormer, Novo Nordisk’s vice president of corporate sustainability.

The new publication brings clarity to this key concept, Lois Guthrie, founding director of the Climate Disclosure Standards Board told Environmental Leader. “[It] is a welcome development that acknowledges unity between CRD members on aspects of materiality and diversity in relation to the context in which they expect materiality judgments to be applied and for whom those judgments are made,” she says.

In addition to helping businesses gain a better understanding of how to address stakeholder needs in their reporting, understanding materiality can help companies select the right reporting framework or standard, says Eric Hespenheide, chair of the Global Sustainability Standards Board (GSSB). The GSSB is GRI’s independent standard-setting body.

“As the CRD paper illustrates, despite differences in wording, all of the standards and frameworks share a common understanding of materiality, namely that material information is ‘…any information which is reasonably capable of making a difference to the conclusions stakeholders may draw when reviewing the related information.’ So for most companies, the problem isn’t how to define materiality; the difficulty is determining who their relevant stakeholders are and selecting an appropriate reporting approach,” Hespenheide told Environmental Leader. “Once a company understands the issues their most important stakeholders are striving to understand about the business, selecting the appropriate reporting standard or framework becomes easier.”

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