What if we look at an old tool in a new way?
I propose a variation on a materiality assessment, as an alternate way to understand a company in relation to the future we want.
This new approach asks the question,“What if ‘materiality’ was based in reality?
Those of us working in the environmental, social and governance (ESG) space, encounter materiality assessments a fair bit. If you’re new to the topic and you’ve just happened by, this view from the Sustainability Accounting Standards Board (SASB) might help; on the other hand it might underscore the need to connect materiality with reality as it outlines more and more appendages being hooked onto the ESG solar system, trying to prove how life can keep revolving around business, and not the other way around.
For more details including the proposed methodology and a prototyped assessment of Alphabet ( Google) to test the idea further, visit my website here. (This is open source content; there is no paywall or log-in required.) More context on what I’m suggesting follows below.
Materiality assessments don’t work (at least, not very well)
Demand for materiality analyses is on the rise as companies and investors push for more comprehensive ESG reporting. This is in response to a growing awareness that the biosphere and human society are hitting some tipping points (and/or to the growing awareness that there is money to be made from various aspects of the ESG trend). I respect the effort and insights that these analyses can yield. I am not suggesting they are for naught.
I have been involved in dozens of materiality analyses, both as a consultant doing the analyzing, and as a stakeholder being engaged, for large companies in numerous sectors and geographic regions. And I have been troubled by the lack of strategic impact — or really any impact at all, beyond organizing more words on more pages of more reports. And I know I am not alone in this feeling.
I suggest that the current, widely received methodology for materiality is untethered from reality. It’s due for an adjustment. And the good news is, we have everything we need to get it right.
Instead of just grumbling about ESG’s shortcomings, as I have done here, and here, I took a step back from the consulting work that has been keeping me busy (and fed…) for nearly 20 years, to embark on an experiment.
Materiality, I’d like you to meet Matereality.
Start with the end in mind
In the beginning, we need to start with the end. Whereas today’s materiality assessments comprise a jumble of issues, nowhere does the questions get asked, “Is this company contributing to the future we want? If so, how? If not, what do we need to change?”
Material issues may be real and relevant, but a key piece is absent: i.e. guidance on how the business contributes to (and/or undermines) the future we want.
There are so many material issues that pile up in a purportedly prioritized matrix, but they don’t offer strategic guidance. In fact, we consultants often say — in defense of the process — that the materiality analysis is intended as “a discussion tool, not a prescription”. That’s a euphemistic way of saying, “It’s not designed to be strategic.”
While material issues are quite likely, er… material, we can do better!
Redesigning four elements of analysis
For an assessment to have meaningful impact on the health of our biosphere and society — and I’m going to assume that this is the intention behind ESG efforts; see *mindset below to pick this thread up in a moment — we need to redesign four things about the way we conduct them.
Note that I did not use the word “tweak”. We need to honestly assess matereality — i.e. what is material, based on reality. This needs to be designed into the analytical process or it won’t happen.
In matereality, we assume a defined set of issues for all companies. We already have ample resources that set the bar for regenerative, flourishing, thriving, future-fit, doughnut-economically-oriented futures. Old materiality is focused on determining those issues over and over, without empowering a company to see itself as a contributor to (and therefore a solver — or perhaps, a get-out-of-the-way’er of) the issues. We know what needs to be done (although alternative visions are always evolving and welcomed). Let’s not waste any more time organizing content that describes the well-recognized problems.
Matereality is transparent — anyone with access to the internet can review the findings. Old materiality is kept in a “black box” and only the (already known) issues list is made public along with generic phrasing about the (not very impactful) process. Yet large companies are transnational economic entities that are in many ways elements — even creators — of the commons. They have impacts and relationships that extend well beyond their four walls, so keeping these analyses private is unhelpful, and a missed opportunity amounting to an expensive, invisible powerpoint.
The intention of matereality is to generate results that the company can use to sense-check their direction of travel. With old materiality, the results offer no meaningful guidance to do anything other than write more words in their ESG report, usually reflecting what they’re already doing.
In matereality, we examine how a company’s current business model contributes to the future we want. Old materiality examines issues of relevance to stakeholders and the business, without directly addressing the business model. Although sometimes “business model” is listed as a material issue! That’s like the consultants holding onto the trunk of an elephant just outside the boardroom, trying their darndest to get him into view of company executives. (“Oh, look!” the consultants exclaim, “There’s an elephant (almost) in the room. Can we talk about it?” “Sure,” say the executives. “Put a paragraph about it in the ESG report.”)
This reality-based approach requires a *mindset (picking the thread up from above) that recognizes the interconnected, interspecies nature of the desired future.
If executives lack an understanding of this, then no external assessment can fix this challenge. If they do already understand this, then a matereality assessment illustrates potential areas for business model redesign and the challenge becomes summoning the will and leadership to face the changes ahead.
To be blunt, without designing the business (and entire industries) for the future we want, the list of so-called material issues will persist, and likely worsen. Writing them down over and over is not creating positive change.
A few more changes designed in
By adopting the first change —i.e. using an understood set of inputs about what is needed — this matereality approach creates a couple of other changes by design.
First, it avoids assuming that institutional constructs of today — such as certain jobs, education models, etc — belong in the future.
It is designed to avoid prescribing solutions from the worldview that created the problems.
This allows for genuine innovation, composting what is no longer working and inviting new, different ways of conducting business that work in service of life. This is an important, complex and fairly nuanced point, prompting questions such as, “Isn’t this what the Sustainable Development Goals (SDGs) are trying to do?” The short (and probably a little unpopular) answer is, the SDGs are not fit for purpose, though I believe we do already have all the elements we need. I provide detail in the methodology deck and the deep-dive discussion in the introductory video, linked here.
Secondly, and relatedly, matereality recognizes the need to understand perspective beyond the human-centric, or even human-only views that are typically included in these assessments.
I don’t have a lock on how to “interview non-human stakeholders” and I realize that probably sounds funny if you haven’t contemplated this before. Yet it will be essential to ensure we create a future where we can thrive as humans within a healthy biosphere, since we are 100% dependent on other species whether we ask them for input or not.
So matereality includes input from non-humans to create a more realistic view of the company’s contributions and underminings of the future we want.
How does it work exactly?
Ah, well there we have to step out of this narrative and come on over into my humble workshop. You can see more about the approach, including the methodology, and a prototyped assessment (on Alphabet/Google) with stakeholder input, here and an FAQ page here.
I offer this in the spirit of creatively shifting economic and industrial activity towards a healing, regenerative mode for all. Thanks for checking it out!
This post originally appeared on my Medium page in March 2022.