How to Create More Mileage from Your Materiality Matrix

Increasing reputation and innovation capabilities by addressing material issues
How to Create More Mileage from Your Materiality Matrix
Publ. date 4 Apr 2014
Currently a professional sustainability strategy is grounded by its materiality matrix. A materiality matrix allows the company to detect which topics are of high, medium, and low interest for the different stakeholder groups of the company and for the strategy and the business of the company itself. The horizontal axis of the matrix usually represents the impact societal issues (economic, social, environmental, political…) have on the company strategy and business and the vertical axis usually illustrates the interests of the company’s stakeholder groups.

Telefónica's Materiality Matrix 

For example, Telefónica -one of the world’s leading integrated telecommunications operators-, finds the materiality matrix helpful to foster confidence with stakeholders. Telefónica is convinced that the confidence of stakeholders created value for Telefónica’s shareholders, and a good materiality analysis is the first step to collaborate for this confidence. Telefónica published its first materiality matrix in the 2009 Corporate Responsibility Report, and since then it has continuously improved its process of development.

The company’s strategy for sustainability has been based on three areas of work: Risk Management, Opportunity Management, and Stakeholder Management. The fact that Telefónica is a services company makes the client the most important stakeholder group; 80% of the business lines work directly with the client. At Telefónica the materiality analysis is actively linked with strategy, risk management and reputation. It is linked with strategy in the sense that the materiality matrix allows the company to detect those topics that are of high interest for both stakeholders and the business. Furthermore it is linked with risk management because it allows to detect those topics that are a risk for the sustainability and reputation of the company. The materiality matrix reflects those topics that affect the company’s reputation from a societal standpoint.

Trading "The Reporting Trap" for reputation improvement

Companies that only use their materiality matrix for reporting purposes risk falling into “The Reporting Trap”: forgetting to create value from the materiality analysis. At Telefónica the corporate sustainability team is looking to extend its use. For instance by actively engaging stakeholders on addressing sustainability issues that rank high in their materiality matrix.

A great example is the Telefónica social network subsidiary Tuenti which addresses the increasingly important topic of privacy and security. In 2006 Tuenti was introduced as the most private and secure social network on the market, offering the user maximum control over their personal data and in particular not selling it to third parties. Tuenti is the first social network to have mechanisms of user identification using the electronic DNI (national identity document). In 2012, Tuenti’s Privacy Policy was reinforced, permitting only real and verified identities, default activation of the maximum level of security and preventing user profiles to be indexed by search engines. 

Driving sustainable innovation 

Another example is the option to include the material issues in the assessment for Telefónica’s world famous startup accelerator called Wayra. Since 2011 Wayra has supported almost 300 startups in cities such as Buenos Aires, Barcelona, London, Mexico and München. If a project has received a ticket to enter Wayra, in the first six months startups will receive funding of up to €50,000 depending on the project’s assessment in terms of the level of maturity and need.  

During a three month period, startups are actively helped to create their Minimum Viable Prototype or MVP. These MVP’s are then presented to potential investors which – in the case of Wayra has led to a 70% success rate. Some of these tickets could be allocated for sustainable innovations that fit the Telefónica materiality matrix.

More background in Harvard case 

In brief: a good materiality matrix influences your reputation when it comes with effective action plans that link the stakeholders’ interests with the strategy of the company. On top it has the potential to become a key driver for innovation. If you want to know more about how Telefónica develops and deploys its materiality matrix, please read the 2012 Harvard Business School case “Developing the materiality matrix at Telefónica” by Professors Robert Eccles and George Serafeim, and Asun Cano-Escoriaza (N9-413-088).

Telefónica is a great example of trying to get more mileage out of the materiality matrix. If your company is also ready to avoid the Reporting Trap, please contact Jan van der Kaaij, at jan@finchandbeak.com or call +31 6 28 02 18 80 for more information.

Co-written by Asun Cano-Escoriaza and Jan van der Kaaij

About Jan van der Kaaij

Creative sustainability expert in strategy development, DJSI and sustainable innovation, with a hands-on approach and always committed to go for the max. | jan@finchandbeak.com 

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