Boards of Directors are trusted to run the company in the best interest of their shareholders. This trust is often referred to as the fiduciary trust; the legal obligation of one party to act in the best interest of another. The duty-bound party is a fiduciary that is entrusted with the care of the owners’ assets. Over the past decade, the notion that this requires the Board of Directors to focus on the direct shareholders’ interests has slowly eroded. Shareholders and providers of financial capital have been identified as one of several stakeholders to the company. With the use of the different forms of capital in the International Integrated Reporting Framework (financial, manufactured, intellectual, human, social and relationship, and natural capital) different stakeholders with different interests emerge. Positively or negatively impacting these interests could have a big influence on the long-term shareholder value of the company thereby becoming material.
In the view of the European Commission, clarification and thereby emphasis of these fiduciary duties and sustainability could motivate investors to allocate capital more efficiently. This implies a shift towards a longer-term perspective on sustainability risks and opportunities, rather than simply seeking to maximize short-term financial returns.
“The world’s most pressing problems have significant impacts. This, coupled with evidence that many of these problems are occurring more frequently, is a clear signal that businesses need to understand how these risks (and opportunities) affect their businesses so that they can disclose those that are material to the financial markets.”
Peter Bakker, President World Business Council for Sustainable Development
In the same research under WBCSD members’ reporting, discussions and surveys with risk management and sustainability practitioners indicated that most practitioners (89%) agreed that sustainability risks could contain a significant impact on business. At the same time, more than 70% of the practitioners claimed that “risk management practices are not adequately addressing sustainability risks”.
So, what is holding companies back? The combination of high complexity and low maturity seems to be a prime candidate... In itself, the process of materiality assessment is at best cumbersome, at worst a time-devouring matchup between external and internal opinions. In addition to the usual difficulties, the sustainability materiality assessment can suffer from other business induced complexities: complications caused by the specifics of the business model of the company. Three of the most common business induced complexities are:
In 2017 Finch & Beak launched its, by now tried and tested, new service called the Re-Fresh Materiality Assessment. Grounded in an agile business design approach, the basic concept is to conduct a thorough assessment of sustainability topics using a big data approach, with a minimum of effort. In summary, the key benefits of our Re-Fresh Materiality Assessment are:
If you want to discover the benefits of integrating big data in the process of your materiality assessment, please contact Jan van der Kaaij, Managing Partner via email@example.com or call +31 6 28 02 18 80 to get serious about your next materiality matrix.
This article is based on information from Winning Sustainability Strategies (Palgrave 2019, Leleux and Van der Kaaij, forthcoming). Presenting numerous award-winning cases from IMD business school and examples from companies such as Unilever, Patagonia, Tumi, DSM and Umicore alongside original ideas based upon 20 years of consulting experience, this book reveals how to design and implement a stronger sense of focus and move sustainability programs forward. This proven combination of purpose, direction, and speed is dubbed Vectoring.
Based upon practitioner cases and data analysis from the Dow Jones Sustainability Index, Vectoring offers a plain-spoken framework to identify the relative position of companies compared to their peers. The framework and its 4 archetypes deliver insights for practitioners to locate inhibitors and overcome them by providing practical suggestions for process improvements. This includes designing and executing new sustainability programs, embedding the SDGs within company strategy and assessing the impact of sustainability programs on competitiveness and valuation. Offering directions for CFOs to shift companies from integrated reporting to integrated thinking in order to accelerate their sustainability programs, Winning Sustainability Strategies shows how to achieve purpose with profit and how to do well by doing good.
In Winning Sustainability Strategies, the requirement for a clear direction and strong execution is described as the Vectoring of sustainability strategies in 14 chapters. Each chapter contains recent research data, in-depth case studies from companies such as Unilever, Solvay and DSM and practical, downloadable tools.