Materiality matrices: examples and best practice

aksaroya —  12 September 2012 — 1 Comment

By James Bonner, independent sustainability consultant

As discussed in previous posts, the concept of materiality in the context of corporate reporting, relates to establishing and identifying which issues are most significant to users of financial accounts and consequently merit inclusion in reporting. If it is accepted that users of financial reporting extend to an organisation’s wider stakeholders, rather than just its shareholders, then there is a need to establish what are the most important and significant issues to these various bodies. By undertaking a process of stakeholder engagement it is possible for organisations to identify and develop a list of the wide range of issues which are important by making a decision on which of these issues are materially significant, and therefore should be focused on when reporting, remains a problem.

One of the methods used by organisations to overcome this is to undertake a materiality analysis including developing a materiality matrix. Undertaking such a process is becoming increasingly common amongst companies, particularly large corporations. Materiality matrices are being utilised by numerous organisations as a key method to identify and prioritise issues, risks and opportunities, and also make decisions over which issues and key performance indicators they should focus on in their corporate reporting. Such matrices are commonly based on a two-axis graph – one axis charting a scale of the importance of issues to stakeholders, the other of significance to the organisation – and with various issues, as identified by stakeholders, plotted on the graph accordingly.

This is best explained through providing an example. The following materiality matrix has been produced by German multinational chemical company BASF, mapping and prioritising a range of issues according to their importance/impact to their stakeholders and impact on the company itself. Accordingly, issues towards the top right of the chart are judged as most materially important:

Source: http://www.basf.com/group/corporate/en/sustainability/management-and-instruments/global-materiality-matrix

There are different perspectives on the use and value of materiality matrices. Positive aspects include the fact they attempt to include wider stakeholder views in decisions over what is reported on and can help mitigate the risk of stakeholder conflicts; they connect the stakeholder engagement process into a definitive action by influencing the process of setting key performance indicators; they provide a process of transparency as to why certain issues are focused on in reporting; and they are useful communication devices to users of reporting as they can clearly, and visually, set out these different issues in communication.

However, it could be questioned why materiality matrices generally include a scale which factors in how important issues are to the organisation when a decision on materiality should, according to most general definitions from accounting bodies, be based on what is significant/important to users of accounts – not the business itself. Furthermore, and a slightly more fundamental question: should an organisation report on what might seem like a key issue if its materiality matrix does not identify it as a significant concern? It may not be perceived as material to users/business at a particular time but is a significant emerging issue, or one that impacts a stakeholder that is not considered fully within the matrix.

This blogpost intends to primarily support the session ‘Practical Workshop: materiality matrices’ at ACCA’s Accounting for the future conference on Monday 8 October by looking the issue of materiality matrices– a tool used by organisations and corporations to prioritise stakeholder interests to identify the most material issues. The risks and opportunities of stakeholder inclusive materiality decisions, and tools/approaches that are used in practice, will be discussed in greater detail in the workshop. Additionally, a number of other presentations during the conference relate to the themes covered in this blogpost:

Monday 8 October
09:30 – 10:30 Thinking alike: getting boards in tune with their stakeholders
11:30 – 12:30 Is natural capital a material issue?
14:00 – 15:30 Measuring risk: material or significant – what it means to me

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Corporate Register
Corporate Register is a significant resource for Corporate Sustainability Reporting (CSR) reports and information from organisations. As part of their work Corporate Register rate and award companies on their CSR reporting, including in a ‘Relevance & Materiality’ category, and are free to join at: http://www.corporateregister.com/

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Trackbacks and Pingbacks:

  1. Materiality in CSR reporting: the importance of GRI’s G4 guidelines | SustainabilitySustainability | Thomson Reuters - November 30, 2012

    […] Using materiality matrices provides reporting organizations with a clear and visual means for improving transparency in communications with […]

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