Following Finch & Beak’s recent ESG Acceleration Webinar Series, several questions came in on how to include the Covid-19 developments in materiality matrix discussions. It’s a clear indication that this topic is on the minds of sustainability professionals, and there is no clear-cut answer. For this reason, we organized an interactive ESG Acceleration Roundtable on this topic on 16 June, where senior executives shared and discussed their ideas, questions, and challenges with peers from different industries from across Europe.

This article explores several of the factors to consider when you are making up your mind about the impact of the pandemic on your materiality matrix, and whether an update would be appropriate.

Factor 1: Design principles for materiality

The exploration starts with a simple, but essential consideration: what defines a material issue? Building on recognized standards such as GRI and SASB, Finch & Beak declares a topic to be material when it:

1. Covers internal and external factors;
2. Has a (potential) impact on the company’s bottom line;
3. Is within the company’s sphere of control and influence; and
4. Is not a purely financial or operational issue.

This also excludes ‘hygiene factors’: topics that may be of internal importance, but don’t have the capacity to serve as a driver for sustainability performance. And finally, it’s important that the materiality matrix is sufficiently forward-looking.

Pandemics as such don’t fit well within these criteria, and are hardly within companies’ sphere of control and influence. That does not mean they are not important to take into account, but it may be more appropriate to approach them from a more classical corporate risk management perspective: impact versus likelihood. A pandemic may have a significant, even devastating influence on business continuity, but it’s not likely to occur frequently. They could perhaps be considered in the same category as hurricanes, earthquakes, or political unrest: you can’t really directly prevent them from happening, but it’s good to have a plan – just in case. The sustainability department is usually not in the driver’s seat for this.

Factor 2: Rising stakeholder expectations

Changes may occur for topics on the vertical axis of the materiality matrix if the expectations of stakeholders towards your company have changed in a post-corona era, and these changes could be relevant for companies across all industries. Civil society stakeholders may be expecting your company to step up in the local communities where you operate, to take more responsibility as an employer that puts the health, safety and well-being of its employees first, and to pay fair taxes – especially if the company has applied for any kind of state support. Investors want to see how resilient you are, and employees may have concerns about their privacy while working from home.

It is likely that your stakeholders are scrutinizing your company now even more sharply and are expecting you to raise the bar. Starting a direct dialogue with them is necessary to learn about their (changing) priorities – and you can use the opportunity to ask them how you can do better.

Factor 3: Scope of business impact

Business impact can be approached from different angles. In order to keep a strong link to the business and maximize management applicability, Finch & Beak promotes connecting material issues to specific business risks and opportunities in addition to the GRI Standards’ approach of considering the company’s economic, environmental and social impacts.

Looking at the latter, again, the company’s direct impact on pandemics is probably close to zero. Through its operations, products and services, the company may however be in a position to influence the conditions under which a pandemic could spread – which we will touch upon in the next section.

Factor 4: Industry- and geography-specific influences

Finally, and perhaps most importantly, the extent to which the corona crisis and its effects could influence your material issues varies greatly depending on the industry and geographies in which your business operates.

The boom of ecommerce is asking more from retailers, transportation companies and service providers. Cable and telecom providers are more than ever before held accountable for providing omnipresent and unlimited access. The future of tourism, hotels and restaurants will look very different from the past. Medical, sanitary and cleaning products have new entered new markets but must also live up to higher standards. Supply chain risks may have become painfully visible across industries. All these developments come with additional environmental, social and governance issues to consider, or increase the importance of existing ones.

How does Covid-19 impact your materiality matrix?

In summary, unless you are a public health organization, a biotechnology or pharmaceutical company specialized in virology, it is unlikely that pandemics belong in your materiality matrix as a stand-alone topic. However it is important to consider their impact on business from a general risk and opportunity perspective. Depending on your industry and geography, specific shifts may be unfolding that may require adjustments in your sustainability strategy and finetuning of your materiality definitions. And across the board the message is clear: stakeholders will expect more from companies in their role as corporate citizens in a post-Covid-19 world.

Are you considering updating your materiality matrix to the post-Covid-19 reality, or are you looking for a sparring partner to discuss the influence of the above factors on your sustainability program? Get in touch with Johana Schlotter, at johana@finchandbeak.com or +31 6 28 02 18 80 for a frank conversation and to hear about how Finch & Beak can support you to accelerate sustainability in the new normal.