1. Materiality supports long-term value creation and protection
First, companies should consider the benefits sustainability can bring: making your business more sustainable may require investment in the short term but builds resilience in the long term, it can drive innovation and identify efficiency improvements, diversity makes for better decision making, happy employees are more productive and aligning with reporting frameworks may be work intensive initially, but provides investors with the globally comparable, decision-useful information they need.
Companies should also recall the consequences of ignoring sustainability, such as higher cost of capital, being vulnerable to supply chain disruptions, failure to keep up with customer needs, staff turnover, regulatory fines and even boycotts of their products and services. Once a company has lost its licence to operate, earning it back is expensive and takes time.
But how can companies find out which sustainability topics really matter to them? The answer is: by carrying out a tight, confident materiality assessment, using established principles and prioritisation techniques. If done robustly, the resulting list of topics will be short. It will cover risks and opportunities that are relevant for the business as well as impacts it has on the environment and people that, if left unmanaged, can become reputational or financial impacts. This list should be validated by the Board.
2. Materiality empowers companies to link sustainability to strategic outcomes
Crucially, topics which have been identified as material should not be considered separately from regular business planning. Instead, they should be linked to the corporate strategy and managed in the same way as other risks and opportunities, using the same control and oversight structures. This empowers companies to explain why their material topics are important for long-term value creation and protection, outline action plans for addressing them that stakeholders find not just credible, but necessary and set metrics and targets to demonstrate their success in doing so.
This includes their own leadership. It can be challenging to persuade C-suites to integrate sustainability topics into the corporate strategy, but understanding them as business risks and opportunities helps to shift mindsets to a place where sustainability is recognised as a driver for positive change and an effector on the bottom line.
It will also help companies report against ISSB and CSRD, which are all about a company’s material topics and what it does to address the related impacts, risks and opportunities. Suddenly, this becomes a logical component of engaging with investors and other stakeholders, rather than a chore to satisfy regulatory caprices.
3. Materiality facilitates shorter, sharper reporting
The primary audience for corporate reporting is investors who need comparable information to assess the prospects of the company – and their investment. They therefore tend to be strong supporters of international frameworks, such as ISSB and CSRD. Given the detailed reporting these require, focusing on the topics that really matter to the business keeps page count manageable while ensuring that precious reporting space is dedicated to relevant, decision-useful information.
This also helps companies to structure reporting suites. Companies can discuss their material topics in the annual report, as expected by CSRD and ISSB, while using topic-specific reports, such as climate transition plan and social impact reports to tailor other content to different audiences, from specialist investors to the general public.
Finally, companies can repurpose reporting content and post snippets and updates to keep the buzz going and maximise the return on their investment.
The power of digital
To do this effectively in the digital age we now live in, companies need to think about what the purpose of each report is and what they, and their audience(s), want to get out of it. Print-first PDFs limit the power of analytics and AI, so how do they know what content people are reading, who is reading it and how best to connect with them?
Digital-first formats empower companies to analyse user behaviour to understand their target audiences better. They also make content machine readable, ensuring that search engines and AI collect information about them from their own publications, rather than less reliable sources, and that investors who increasingly use AI tools find the data they need and that it is interpreted, classified and rated correctly.
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