The potential of materiality: part 2 (the impact of COVID-19 on materiality)

In the first blog of our tetralogy on materiality, we discussed the potential we see in the revisions made by the standard-setter Global Reporting Initiative (GRI) regarding materiality. GRI advises performing a materiality analysis to identify the most important topics for your organization – and to re-assess these topics every two or three years. In this second blog, we elaborate on the sense of doing a materiality analysis. Why would you perform such a materiality analysis and even re-assess an analysis done previously?

Well, we live in a constantly changing world. These changes influence an organization’s position and how stakeholders perceive the organization’s activities. Take the ‘increased interconnectedness’, for example. We see that people are increasingly connected to one another, by technology. As it is relatively easy for us to get familiar with the activities of an organization taking place on the other side of the world, transparency becomes an even more important topic for many organizations.

A materiality analysis helps us in comprehending this changing world and the accompanying changing perceptions of stakeholders. (re-)Assessing the material topics is therefore important to ensure the organization informs its course based on up-to-date information. It helps to identify and prioritize the topics that are most important for the organization to control and act on as needed.

However, for most organizations, pandemics are hardly within their sphere of control or influence. It is the consequences of COVID-19 which are significantly impacting the organization. In addition, the way people or organizations deal with those consequences is something they can influence. As such, it is not that pandemics, in general, should be included as a material topic, but how we can or even should react to it. This made us look at topics like ‘health and wellbeing’ or ‘digitalization’ as COVID-19 tied us even more to our laptops.

These topics are not ‘new’. For example, due to COVID-19, the Dutch government published a list of vital professions with positions that are crucial for society. We knew all along that healthcare providers and teachers – the so-called vital professions – are important, but now their importance and undervaluation (in financial terms) becomes quite evident. This is also exactly the case for topics like ‘health and wellbeing’ and ‘digitalization’. They were important before COVID-19, but now the emphasis has shifted.

As these topics are not new, we already see them in former materiality matrixes. For a food retailer a topic like ‘product safety and quality’ or ‘health and well-being’ was often already shown in the upper-right corner – meaning that it is an important topic for that organization. Or for a construction company, topics like ‘safety and security’, ‘risk management’, and ‘digitalization’ are often mentioned as material topics.

Hence we believe the challenge is not that completely new topics have emerged due to the crisis and that new analyses must be conducted. The challenge relates more to the manner in which organizations act upon the identified material topics.

The topics in one’s matrix should be re-evaluated to see whether COVID-19 has impacted its scope and potentially also the management processes. As KPMG’s 2020 CEO outlook shows, most organizations will continue to focus on topics that were important beforehand, but just with another emphasis. A topic like ‘attracting and retaining talent’ remains important, but the scope now suddenly also includes talent abroad due to the remote working processes. Similarly, CEOs mention they will continue to build on their use of digital collaboration and communication tools, thereby expanding the management of a topic like ‘digitalization’.

In the third blog ‘The potential of materiality: Part 3 (the alignment with strategy and risk)’ of our tetralogy on materiality, we will dive deeper into the management process regarding your material topics and the importance of integrating materiality into the organization beyond disclosure. Stay tuned!

Author: Lot Elshuis.

Are you looking for support in executing a materiality analysis for your company? We can help! Send an email to Daniek or Lot or give us a call anytime.

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