Materiality Assessment - Datamaran · PDF fileStudies have shown a link between ESG concerns...

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MaterialityAssessment

IN RECORD TIME

© eRevalue, Ltd. | www.datamaran.com 2

ABOUT Datamaran (eRevalue)eRevalue is a leading global business intelligence provider.

Our proprietary business intelligence platform, Datamaran, provides automated big data analytics, drawing insights from the world’s largest 7,000 companies, over 3,000 regulations, and from online news sources and social media.

Almost 70% of Datamaran users are in CSR/Sustainability roles within multi-national enterprises.We have helped many of them with their materiality assessment process.

A key component of our vision is to help companies make the business case for non-financial issues and integrate them into business decisions. Our route to integration takes companies holding CSR in a silo to truly sustainable businesses. The materiality assessment is a strategic instrument to reach that goal.

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3© eRevalue, Ltd. | www.datamaran.com

This book has been written for sustainability professionals, corporate responsibility professionals, risk managers and those involved in corporate reporting. It will give you the key information needed to create the perfect materiality assessment. There are a number of new regulatory developments such as the EU Directive on non-financial reporting and responsible investment drivers putting non-financial issues at the forefront of corporate strategy and reporting. These include Environmental, Social and Corporate Governance issues (ESG), geopolitical and technological issues.

With CSR moving from voluntary into compliance frameworks, we can observe through our data that non-financial issues reporting is increasingly becoming the law. Recent studies show that around 80% of the world’s largest 250 companies are identifying material sustainability issues in their reporting1, demonstrating that non-financial issues can be material. International reporting frameworks such as Global Reporting Initiatives (GRI), Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Commission (IIRC) provide guidance on how to manage and measure these issues.

As per the advice of the frameworks, most companies undertake a materiality assessment to identify which issues matter most to their business, and their stakeholders. This can then be used to align business strategy, reputation management and corporate reporting to minimise risk and create value.

While material topics may not change regularly, the way industry best practice evolves, the way private and public regulators are mandating disclosure, and the way in which the public and the media look at the issues DOES evolve. Hence there is a clear need to evolve this materiality assessment from a manual, once a year exercise to a more continuous process. Technology is an enabler to speeding up how you track these sources, providing you with more reliable information.

Best practice examples show companies tracking these changes in real time to be more proactive and resilient. Studies have shown a link between ESG concerns with strategy for improved long term corporate performance. The National Association of Corporate Directors (NACD) recommend the creation of an ESG early warning system at Board level. It is therefore unsurprising that we have seen an increase in clients seeking ways to professionalize their materiality assessment process.

1 KPMG Survey of Corporate Responsibility Reporting 2035 p14.

Introduction



https://home.kpmg.com/xx/en/home/insights.html

https://home.kpmg.com/xx/en/home/insights.html


What is Materiality?

The following definition of materiality is agreed by members of the IIRC, IASB, GRI, FASB and SASB:

“Material information is any information which is reasonably capable of making a difference to the conclusions stakeholders may draw when reviewing related information”. Source: International Integrated Reporting Council (IIRC)

What are the Benefits?

1. Better decision making for investment in sustainability (know what is material and where you can have the biggest impact or mitigate the biggest risk).

2. Integrate non-financial issues into reporting to present a more complete picture to stakeholders.

3. Enhance business strategy by using materiality assessment input to reflect new business risks and opportunities.

4. Strengthen the foundation of sustainability work by embedding these issues across departments and supply chain.

5. Enhance stakeholder engagement by presenting them with viewpoints on issues that illustrate long-term value.

6. Stay ahead of continuously evolving stakeholder and regulatory demands on these issues.



http://integratedreporting.org/news/corporate-reporting-dialogue-releases-a-statement-of-common-principles-of-materiality/


We have broken the process into 4 key stages:1. IDENTIFY scope and purpose, universe of topics and key stakeholders2. PRIORITIZE which topics are of high importance to both business and key stakeholders. An in depth, data driven materiality analysis should rely on several stakeholder groups.3. VALIDATE these with internal and external information4. INTEGRATE the findings into future business strategy. It may seem obvious, but you need to actually use the results, rather than just create a report.

Throughout the entire process, monitor what is changing, how issues are being framed across the industry, region, and public sphere. Five years ago, the business community wouldn’t have expected the topic of ‘air emissions’ to trigger one of the largest corporate scandals of recent years, or that it would become an enduring topic amongst the media and consumers. But enter the VW scandal, and expectations of companies reporting on this topic has changed dramatically. Stay ahead of the topics that could potentially put your organization at risk in the future. Material topics should both reflect your significant corporate ESG impacts, and influence the opinion and decision making of your stakeholders.

Materiality: Your Key Ingredients

Your materiality assessment process




Not all material issues are of equal importance. Broadly speaking, it is expected that there will be some level of prioritization of material issues. The process can be simplified by identifying all high priority, medium priority and low priority issues.

It is advisable to consider the following to ensure your materiality assessment is robust: • Rely on experts and non-financial reporting frameworks to make sure you have a comprehensive understanding of the subject matter, and how this might be impacting your business.

• Disclose the major impacts your business has - both positive as well as negative effects.

• Explain which reporting frameworks you have used - and to what extent you have applied them.

• Make sure you include the opinions of key internal stakeholders i.e. employees.

• Review the key challenges and focus areas of your key peers - the industry leaders – and the industry at large.

• Make sure you understand the regulatory landscape and how these issues are increasingly being regulated - and where penalties may sit.

• Align the priority issues identified within your corporate strategy, your values and your strategic priorities to be most impactful.

• Make sure you balance positive information with negative information - it’s sometimes more important to address the challenges than shouting about your success stories (although of course you should do that as well!)

While there is much uncertainty to predicting future risks and opportunities, the opportunity of the materiality assessment process is to do so in the most robust way possible. Ultimately it is about ensuring your company is as resilient as possible and ready to tackle the future.




Your materiality assessment can be used as a strategic instrument for evaluating material issues within your organization.

Remember that an assessment is not the same as an analysis. Know what your aim is, and how deep you can go.

We understand that your budget will most likely play a significant role in deciding how in-depth your materiality assessment will be. Budget constraints might limit the number of sources you might want to include, and the depth of analysis you can look at.

Many companies are still doing this manually, but new technologies now allow you to access enormous online publicly available data-sets to detect previously unknown patterns.

The growth in artificial intelligence technology within the business analytics sphere means that now you can access big data analytics on a range of sources at affordable prices. This brings us to our first secret of this eBook.

You don’t have to do it all manually! Consider how you can expand your scope to design the materiality assessment process that best suits your business.

Manually We discussed in detail the manual research considerations you may want to include in your materiality assessment on pages 5 and 6. Some companies do this in-house - other companies hire consultants to help with the desk based research and the interviews.

The Datamaran ApproachWe have deliberately built our Datamaran analytics platform to be framework neutral, enabling material issues to be mapped across various frameworks i.e GRI, SASB, or SDG. It enables monitoring of big data across the world’s largest companies, global regulatory changes (both soft and hard law), online news and Twitter, enabling a fully comprehensive and robust materiality analysis process.

1. Assessment

2. Monitoring

3. Analysis

How do I do it?




It is important to consider why you are undertaking this materiality analysis before you start. This will determine how you project manage the process. There is no right or wrong answer, but you need to consider what matters to your business.

VisualizationsThe most common visualization of a materiality assessment is the Matrix. In most cases, companies plot the strategic priorities of the business on the X-axis and the most significant issues according to stakeholders on the Y-axis. We suggest you take time to decide the purpose of the exercise.

Where the IIRC takes a more business strategy focus - by prioritizing stakeholders such as ‘providers of financial capital’ and by stressing the organization’s ability to create value in the short, medium and long term - the IIRC recommends the X-axis to represent the magnitude of effect and the Y-axis to represent the likelihood of occurrence of the priority topics. GRI takes a significantly different approach, recommending the X-axis represents the impacts of the company on society, and for the Y-axis to represent the significance of the topic to stakeholders.

This is an important strategic choice to make. However, in some cases, the resulting issues will be quite similar, as business priorities and stakeholder concerns can overlap significantly.

Think about what you represent through any visualizations. Choose the visualization that best suits your research and objectives. We can help you with this if necessary.




Our data can distinguish between baseline issues (those which have become the new baseline/normal and should not be overlooked) and emerging issues (the evolving topics, such as cyber security and geopolitical risk) to ensure no material topic is overlooked. The example below shows some of the non-financial issues that are now becoming the norm for reporting, and those new and upcoming ‘hot topics’.

Sometimes companies over inflate the relevance of topical issues (such as cyber security) due to its relevance in current discussions. Assign an importance ‘score’ to each issue, based on stakeholders’ concerns.

Representing the assessment in a matrix is not a requirement. Other visualizations that might be used include:

Tip:

For your visualization, you don’t necessarily need to make a discinction between importance to the business and importance to the stakeholder. What matters to the reader of your report might just be what you are going to be focused on for the year ahead.

Big Data

Smart Home

Internet of Things

Digitaltransformation

ArtificalIntelligence

MobileWallet

Bitcoin/block chain/Virtual currency

MobilePayments

VirtualReality

AugmentedReality Fintech Digital

Wallet

ApplicationProgrammingInterface

DigitalBanking

DigitalCurrency

NaturalLanguage Processing

1. Bubble Chart

If you want to visualize the key topics, a bubble graph can be an easy way to demonstrate the parameters of topic size and growth over time. Use bubble charts to illustrate relevant jargon using a scale to identify priorities (for example, bubble size, or color of bubble. Use bubble charts to illustrate relevant jargon using a scale to identify priorities (for example bubble size, or colour of bubble).




2. Radar

All Financial Reports

Frontier Financial

Company Financial Reports

Shareholder activism

Human Rights

Labor Rights

Land

Greenhouse gases

Local economy

Relief & disaster aid

Energy use

Occupational health & safety

Forests

Climate change

Philanthropy

Unionization

Workforce changes

Employee engagement

Climate finance

Wellbeing

Biodiversity

ESG management

Fair competition

Stakeholder inclusion

Consumer rights

Community support & development

Water use & efficiencies

Recycling & waste reduction

Skilled workforce

Social inclusion

3

2.5

2

1.5

1

0.5

0

Manually Look at the reports of your peers. Note what they measure and how they visualise it. Take inspiration from best practice on what is most relevant to your research and objectives.

The Datamaran ApproachThe Datamaran platform has built in automated analytic visualizations across several data-driven inputs to complement your materiality assessment process. It even includes mapping visualizations including GRI, IIRC and SDG frameworks to highlight how you compare to others in your industry, region or a set of identified peers.

If you want to talk through the scope of your report with us, we offer a free 30 minute consultation. If interested, sign up here:

How do I do it?



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Understand what resonates internally and frame it in the best way possible to make sure you derive most value from your materiality assessment process.

During the process of defining the scope and purpose of the materiality assessment, you may wish to consider the most used reporting frameworks – i.e Global Reporting Initiative (GRI); Sustainability Accounting Standards Board (SASB); International Integrated Reporting Council (IIRC); Sustainable Development Goals (SDGs).

Many of our clients are currently using the SDGs as a way to elevate the CSR/Sustainability conversation internally. In many cases, Boards and management teams are being asked questions about the way in which they adopt these.

Another way to raise the discussion internally is to focus on leader/laggard information, legal requirements and reputational risk.

For your materiality assessment, it is common to include the following data sources: annual reports; sustainability reports; SEC 10-K filings; SEC 20-F filings; new regulations - both soft and hard law (either expected, updated or even reversed); online media; stakeholder interviews i.e industry/NGOs/investors/public views.

Use the insights you derive from these sources, and frame them in the context of competitive, regulatory and reputational risk. All of a sudden, you will have a conversation that goes beyond the purely CSR discussion.

Which brings us to our next secret:

Frame your materiality approach in the correct business language to gain buy-in from the people that can further embrace the process.Taking inspiration from experienced contacts will save you time and energy. We have learnt from client roundtables, the value some conversation can add. What may seem like a simple piece of advice, may in fact be the crux of how successful your materiality assessment is.




Manually Mainly internal networking. Ask your CSR peers at other businesses for advice on how they did it.

The Datamaran ApproachDatamaran can quickly help to identify leaders/laggards, help to determine regulatory topics and provide reputational information. By using Datamaran’s “smart search” features, our clients quickly identify best practice, delve into reporting priorities, highlight useful sources and access pre-analyzed content. This saves hours of manual analysis and the insights generated are objective. Most importantly, it removes the “gut feeling” element that often surrounds CSR, and instead, speaks the language executives understand.

How do I do it?




Tip: SDG Adoption

Your Board and Management teams are being asked by various stakeholders and investors about SDG adoption.

There may be low-hanging fruit opportunities where your business can easily contribute towards the SDGs, and there may be SDGs that form a direct fit with your pre-identified strategic priorities, making this exercise a win win.

While identifying your universe of topics, use frameworks for inspiration - however do not feel limited by them. Frameworks give guidance on how to manage and measure these topics - but of course there might be issues that are material to your business that sit outside of these frameworks.

Let’s take the Sustainable Development Goals. Use the SDG framework to look beyond what you think is material. The SDGs are a North Star that companies can use to identify where they can push the boundaries (and do more for society).

You should of course link your material topics to the SDG framework to understand how your topics are contributing towards achieving the SDGs - but the SDG framework can also help you to be more ambitious, and take a leadership role in society.

Instead of starting with the framework and determining what is relevant to your business, start with a thorough materiality assessment. After which, you can link those material topics to existing frameworks and guidelines. This is why it is important to use objective and fact based information.




Manually Determine your topic universe by looking at sources like trend reports, benchmark through existing agencies and/or work with consultants to discover what is trending in the public sphere. Compare data on topics your peers are using to demonstrate where you are leading, and where you are lagging in comparison to peers.

The Datamaran ApproachOur clients use Datamaran Benchmark to select pre-set templates of recognized reporting standards and frameworks against which topics are automatically mapped, which can be compared across peer companies, regions and industries in a few clicks. This can be used to visually highlight areas of risk, and is backed by large data sets, adding validity to your analysis.

How do I do it?




A materiality assessment can help your company identify and prepare for risks and opportunities pertaining to the entire company. However, other departments might not always be aware of your efforts - especially if they are exclusively used for the purpose of your CSR report.

Data driven materiality can help you do your job better.

Consider a data driven analysis of competitors/peers; shareholders; customers; employees; suppliers; media; industry and trade associations; thought leaders; sustainability leaders; NGOs; local communities; government to expand the scope of your analysis.

Which brings us to our next secret:

An evidence-based objective approach will help expand the conversation beyond your sustainability department, including risk management, compliance and business strategy teams. Bring the senior management team, risk management and strategy teams in for a discussion on the business wide impacts of your materiality assessment.

Manually Manually analyze multiple sources in order to draw evidence-based conclusions from your data sets.

The Datamaran ApproachDatamaran pre-analyzes three elaborate corporate, regulatory and media databases to assess corporate, government and public views. Using automated visualizations and data exports (Excel, CSV etc), our clients access solid decision-making evidence which supports external assurance engagement.

How do I do it?

Listen to Jennifer Leitsch, Director of Corporate Responsibility at CBRE, talking about how and why she undertook her data-driven materiality assessment.

Tip: This helps with external assurance too!



https://www.youtube.com/watch?v=6YTSmVaaojw


Engage the senior management team (i.e C-suite/Board of Directors) as a key internal audience to validate your materiality assessment, and incorporate them into the strategic focus of the company.

Involvement of leadership is key. Use their language.

According to the Bank of America Merrill Lynch, 90% of bankruptcies could have been avoided using ESG data. Management of non-financial risks is essential to the survival of business in the future. Get senior management on board with this message.

Manually Build visualizations to present material topics with a clear rationale behind the selection. Set up internal meetings to discuss whether or not action should be taken against these issues.

The Datamaran ApproachOur clients access automatically genererated visualizations based on objective data-driven insights to validate their topics. This allows companies to link material issues with corporate strategy based on the extent to which they present a competitive, regulatory or reputational risk.

How do I do it?

Tip:

In this way you can prove that non-financial issues matter beyond being “the right thing to do”. As we know, that argument doesn’t work on everyone.




Of course, as part of any materiality assessment you need to monitor and evaluate how topics are being discussed. Traditionally, materiality analysis has taken place only once a year. Evidently topics can evolve in that time.

But there might also be new issues popping up which will affect how much importance your stakeholders place upon the topics. This is where our final secret is becoming more and more valuable.

Establish a continuous process of monitoring risk, opportunity and stakeholder opinion so you’re not caught out unprepared.

The results of your materiality analysis can be used to establish a more robust and continuous risk management process for your business, rather than just being used once in annual reporting purposes.

Monitor topics over time. Elements to monitor: • New regulations/updates to existing regulations• What are your competitors/peers talking about?• What issues are your stakeholders (including media) most interested in?

Be Conscious of Emerging Issues. Be Alert: • The Datamaran approach is dynamic so new issues are added as they arise – i.e amendments to US legislation in the first 100 days of a new administration.• You can set up alerts in Datamaran on your material topics, meaning you can be kept up to date on how these evolve over time.

Benchmark Observe NewsFlow




Manually • Talk to your stakeholders on an ongoing basis and make the various department heads responsible i.e Head of HR should keep a pulse on employees; Head of Procurement should engage with suppliers• Identify thought-leadership organizations (including those who set standards) and subscribe to their newsletters• Set up Google alerts for key topic areas of interest• Subscribe to RSS feeds• Connect with legal departments for regulations’ evolution

The Datamaran ApproachUsing the Datamaran platform, you can set alerts on any changes on selected topics of interest - across 50,000 corporate reports, the regulatory landscape and across social and online media. In this way you are alerted when anything changes in reference to your material topics, and are prepared when new issues emerge.

How do I do it?




What Our Clients Recommend

“Technology more than ever before gives us that capability: to predict what we need to do”Amanda Gardiner, VP Sustainability and Social Innovation, Pearson Plc.

“Every time I show colleagues what Datamaran can do they are blown away.”Cora Olsen, Head of Triple Bottom Line Reporting, Novo Nordisk

“With Datamaran, we can get ahead of emerging regulation, industry trends and public sentiment, and make decisions based on credible insights”.Jennifer Leitsch, Director of Corporate Responsibility, CBRE

“Data-driven materiality helps us to make better strategic decisions”Global Head of Responsible Business, BBVA

“Santander has made inroads in benefiting from new developments incorporating Datamaran at the center of processes in prioritizing sustainability issues”.Etienne Butruille, Deputy Global Head of Sustainability, Banco Santander

Listen to Amanda Gardiner, VP of Sustainability and Social Innovation at Pearson Plc., discussing the role of technology in helping to predict where you need to get to.



https://www.youtube.com/watch?v=Eal90CMe6vk&t=16s

© eRevalue, Ltd. | www.datamaran.com

How We Can HelpRapidly evolving business intelligence technology means that more and more companies are using artificial intelligence and big data analytics to streamline their materiality analysis process. We have listed our key analytics platform tools below.

Access the best product for your needs at the best price point. Master new levels of analysis by widening the scope of your materiality assessment with greater rigour, using valid data, and in record time.

We also offer bespoke services to support materiality analysis – at Datamaran Expert level.

* on an annual subscription basis

£70/month £700/month* £1250/month* Consultation

Corporate reports database

Keyterm search with highlighted results for fast research

Benchmark at industry/region level

Map automated SDG, GRI, IIRC and ISO frameworks

Slice and dice data by region, source, industry or peer

Identify & monitor regulations

Monitor & analyze social media topics

Monitor & analyze online news

Collect & monitor stakeholder feedback

Bespoke support from our expert team

Import non-Datamaran sources for AI analysis

Build custom topics into the technology


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https://www.datamaran.com/enquire-benchmark/

https://www.datamaran.com/enquire-professional/

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Get in TouchWe hope this eBook has been a useful resource for you, and wish you the very best of luck in conducting your thorough, data-driven Materiality Assessment.

To talk to us about how you can develop a more sophisticated materiality assessment, or to learn more about artificial intelligence and data analytics, or if you want to find out more, get in touch.

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Materiality Assessment - Datamaran · PDF fileStudies have shown a link between ESG concerns...

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