The materiality matrix and how to construct it

The materiality matrix consists of issues that can have a severe impact on an organization’s performance. On the one hand or x-axis, these issues are ranked on importance to the organization itself. On the other hand or y-axis, the issues are ranked on their relevance to the organization's stakeholders: e.g. customers, employees, NGO’s and suppliers. By valuating the materialities, an organization obtains a clear view on the issues that matter most to them, so they become able to prioritize and take the right actions to improve their performance.

Constructing a materiality matrix is a valuable process, but with big results. In addition to involving executive management and increasing engagement, the process also delivers a better understanding of your stakeholders. Furthermore, the matrix can be used as a steering mechanism: is your company focusing on the right KPI’s? Is your CSR agenda aligned with material issues? Renowed reporting standards, most notably GRI G4 and the new GRI Standards, are increasingly focussing on materiality driven-sustainability in order to determine the real value created by an organization's sustainability strategy.

Solid process required

As the popularity of the materiality matrix rises, so does the ‘quick and dirty’ approach of constructing one. It’s  quite a simple process to draw up a materiality matrix and publish it: however, an improvised or unverified matrix could become a liability for the company. A recent study  by CSR Insight showed that widespread corporate noncompliance with Security and Exchange Commision (SEC) requirements triggered by material ESG issues may cause many SEC filings to be materially misleading, inaccurate, or even fraudulent.

Therefore, following a throrough process is imperative in constructing a solid materiality matrix:

1. Involve your management team
2. Engage your stakeholders by conducting a dialogue
3. Embed your material issues in your organization by using KPI’s.

These steps lay the foundation for a CSR program that creates value in the areas most relevant to the organization and its stakeholders.

Concluding from this industry analysis, what seems to set the frontrunners apart from the herd is a strategic focus on sustainability as a key driver. They approach sustainability as an opportunity for value creation, and not just a set of measurements in order to comply with regulation.