It seems everyone loves cats and dogs. Banks, insurers, recruitment and storage companies are all keen supporters of dog and cat charities. Some of this is very worthy and important. And of course we all recognize the power of a cute pet to mobilize action: millions of social media shares attest to this!
Engaging staff in a fund-raising effort for a good cause also makes good business sense. There is the sense of camaraderie, of stepping outside the day-to-day. All good stuff.
These pet projects (sorry!)—whether for dog and cat charities or other broad-based, cause-driven campaigns—are the typical starting point for companies embarking on their CSR journey. Lifting staff morale grounds the business case, but beyond a vague sense of ‘giving back’ these initiatives lack potency. A company has to understand the broader impact it has on society to make a real difference and to become a more sustainable business.
How can social responsibility drive greater business value?
Beyond this initial community engagement and charity, companies begin to take account of issues that bear financial or reputational outcomes for the business. Some of these CSR issues are considered in the normal course of business: A food manufacturer will certainly be interested in food safety at their sites. A steel manufacturer will be keen to reuse waste from the manufacturing process. These issues are business critical; a food manufacturer with a safety scandal has a crisis on its hands. So it is likely that these issues will be receiving some management oversight. These risks are the first you can put on a list of material issues for your business to consider.
Megatrends companies have to consider
- Resource scarcity
- Climate change
- Water scarcity
- Changing demographics
- Increased urbanisation
Many companies know there is more they could be doing, beyond not breaking the rules or being frugal with their raw materials. “What should we focus on?” is a common question from companies at this stage. And fair enough too. Any discussion about what corporate social responsibility entails can quickly seem to encompass an overwhelming range and scale of issues, everything from charitable giving to climate change.
Furthermore the person tasked with exploring “what CSR means for us” will know that they cannot afford to be seen to be favouring the “issue of the moment” or falling down the “slippery hippie slope.” This is a business after all! So the key is to establish what the most relevant issues are for your business. In the jargon this process is known as a “materiality analysis.”
With a materiality analysis in place, companies can be more consistent and transparent about why and when they choose to take action (or not) on social and environmental goals. Sound materiality analysis leads to actionable impact goals and meaningful evaluation and metrics, which help to mitigate ‘green-washing’ risks.
While materiality analysis has evolved into a technical, formalized process that drives large-scale corporate reporting standards (like Global Reporting Initiative, Integrated Reporting, and others) that are predominantly aimed at investors, conceptually it is not complicated and it is an essential foundation for developing your CSR strategy and programmes in a way that is consistent and transparent for your stakeholders.
What is materiality analysis?
Materiality analysis helps you prioritize CSR activities in a clear, consistent way that isn’t over-reliant on your personal preferences or on strictly financial outcomes. Material issues are….
- Important to stakeholders
- Important to the success of the business (and this is understood in more broad terms than simply financial success)
- Reasonably within the ability of the business to have an influence.
Materiality analysis evaluates the costs, benefits and risks associated with your business activities, from both your company’s and your stakeholders’ points of view.
Done effectively, materiality analysis will help you prioritize among the many opportunities for CSR activities, policies, and investments. Does it make strategic sense to improve working conditions for your employees? To reduce your carbon footprint? To invest in social programs in your community? Which has the most ‘bang for the buck’ in terms of your social or environmental impact, or your competitive advantage? A materiality analysis helps answer these questions.
Five steps to meaningful CSR strategy
First, before engaging with stakeholders it is important to identify who they all are. That may sound obvious, but it often isn’t: there are constituencies that you may know are important to consider, but for which you’ll need to find a proxy. Who do you engage with about ‘the environment’ for example?
Second, leaders need to be committed to potentially challenging conversations. It is all too easy to speak to friendly stakeholders and leave out the critical ones. If Greenpeace have been campaigning against your organization, kicking up trouble for you, then you need the courage of your convictions to go to your team and say ‘we need to bring them into a room and find out more about their concerns.’
To engage with your stakeholders is to achieve a broader understanding of what matters to people outside your business. Some of what you’re told will not be easy to hear, and some of it may seem beyond your control to influence. That’s okay and can be accommodated later in the process. It is better to have listened than not.
Materiality analysis helps you prioritize CSR activities in a clear, consistent way that isn’t over-reliant on your personal preferences or on strictly financial outcomes. Material issues are…
Third, having identified who you are going to ask, you need to pull together a long list of possible issues to ask stakeholders about. The Global Reporting Initiative (www.globalreporting.org) has lots of advice on this process. They group issues under various headings of economic, environmental and social. The social aspects are so broad that this is further differentiated into labour practices, human rights, society (local communities, public policy, corruption etc) and product responsibility.
Fourth, by asking stakeholders how important these issues are to their assessment of your business and considering what impact various issues have on your business, you can then rank the issues on two axes in a materiality matrix or graph, with one axis for impact on the business and one for importance to stakeholders. A third dimension can be added by considering the degree of control the company has over an issue.
Visualizing these three dimensions of materiality in the form of a graph helps make them easier to understand. The highest priorities will be where the business and the stakeholders are aligned on the importance of an issue (towards the upper right corner), and where there are concrete actions the business can take that will be impactful.
Focusing on what the future will bring
When we polled CEOs, 74%
told us that measuring and
reporting their total impact (financial
and non-financial impacts) contributes
to their long term success
– PWC17th Annual Global CEO survey
Fifth and finally, now the business can focus on key areas that really matter. With this materiality analysis in place, you can develop responses to the issues that matter and move forward with your sustainability strategy. The ongoing work of sustainability and corporate social responsibility is the ongoing effort to tackle the issues that matter while increasing business performance—and continuing to engage with the stakeholders that care about your business, community and environmental activities.
I’m willing to bet that for most companies, the issues aren’t resolved through donations to pet charities.
Adam Garfunkel is a Principal at Junxion, and leads our London office. He’s been focused in corporate social responsibility for over 15 years.