Creating Connections
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Acknowledgements of third party source materials are contained on the relevant slides.
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Creating Connections
Approaches to materiality
Robert van der Laan – Sustainability & Responsible
Governance Partner, PwC
Anouk Wentink – Sustainability & Responsible
Governance Manager, PwC
Stathis Gould – Head of Professional Accountants in
Business, IFAC
Denise G. Nogueira – Sustainability Manager, Itaú
Unibanco
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Overview

Introduction

Methodologies

Real life case

Determining materiality for your own organization

Recap and conclusion
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Introduction
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Key objectives
•
Understand approaches to determining materiality in the context of <IR>
•
Experience how to use the materiality concept
•
•
Opportunity to share your experiences and learn from others about the benefits and to
tackle difficulties and challenges facing materiality
Be equipped with insight into the next steps to embed the analysis into decision-making
and reporting
•
Be able to demonstrate materiality in an integrated report
•
Be familiar with the IIRC technical project
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Materiality in the context of Integrated Reporting <IR>
‘A matter is material if it could substantively affect the organization’s ability to create
value in the short, medium or long term’
<IR> refers to 6 capitals in its value creation model, including
 Financial
 Manufactured
 Intellectual
 Human
 Social and relationship
 Natural
Source: The International <IR> Framework
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Poll question 1
The most important benefit of knowing your material matters:

Answer 1 – Clarifies emerging matters

Answer 2 – Clarifies relevant information

Answer 3 – Clarifies stakeholder needs

Answer 4 – Foundation for <IR>

Answer 5 – Other
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Relevance
Benefits of having a clear picture of what is material to the business
Paul Polman (CEO Unilever) describes how a lack of foresight hurt Unilever:
“We missed the issue of obesity and the value of healthy and nutritional food. We
were behind, while Nestlé was riding that wave. Not being in tune with society, with
the benefit of hindsight, can cost you dearly.”
Risks
 Reports include too much
irrelevant information (time
consuming and costly)
•
•
•
Internal and external
reporting is not aligned
Reports are not adhering to
(information) needs of
investors/stakeholders
Organizations face more
and very diverse reporting
requirements
Benefits
1
•It provides a clear analysis of emerging
matters on the short and long term
2
•It clarifies the real matters and relevant
management information needed for
strategy execution
3
•It ensures that different
investor/stakeholder (information)
needs are taken into account
4
•It is the foundation for integrated
reporting
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Methodologies
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Determining materiality for Integrated Reporting
Relevance
Identifying relevant matters based on their
ability to affect value creation
Importance
Evaluating the importance of relevant matters
in terms of their known or potential effect on
value creation
Prioritization
Prioritizing the matters based on their relative
importance
Disclosure
Determining the information to disclose about
material matters
Source: The International <IR> Framework
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Materiality Analysis – Intel – An Example of Disclosure
Source: Intel Business Integrated Approach, 2013
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Materiality comparison between reporting standards and
frameworks
<IR> (Global)
IFRS (Global)
GRI (Global)
SASB (US)
Audience
Providers of financial capital
with a perspective on short,
medium and long term
All existing/potential investors,
lenders and other creditors
All stakeholders
Subject
matter/report
purpose
Value creation over time
Financial performance and
position
Sustainability impact
(economic, environmental,
social, and governance)
Nature of
definition
Multistep process:
• Relevant issues effect
strategy, governance,
performance, prospects
and are discussed by board
• Disclosure of material
matters based on user
need, and guiding
principles
Information is material if omitting
it or misstating it could influence
decisions that users make based
on financial information about a
specific reporting entity.
Relevance based on the nature or
magnitude, or both, of the items
to which the information relates in
the context of an individual
entity’s financial report
Organisation driven
materiality
The report should cover
aspects that:
- Reflect the organization’s
significant ESG impacts; or
- Substantively influence
the assessments and
decisions of stakeholders
Disclosure form
Integrated report
Financial statements
Sustainability (GRI) report
Investors of those companies
that engage in public offerings
of securities registered under
the Securities Act
Sustainability impact
(environment, social capital,
human capital, business model
and innovation, leadership and
governance)
SASB identifying minimum set
of sustainability topics that have
a significant impact on most, if
not all, companies in an industry
and which—depending on the
specific operating context—are
likely to be material to a
company within that industry;
guided by materiality definition
adopted by U.S. Securities laws
and case law
For use in reports filed with the
SEC
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Poll question 2
Which materiality approach are you most familiar in applying?

Answer 1 – <IR>

Answer 2 – Financial (IASB/FASB/National GAAP)

Answer 3 – Sustainability (GRI/SASB)

Answer 4 – Regulated disclsoure
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Answer 5 – Other
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Real life case
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Itaú Unibanco
• Most relevant issues/aspects for the organization’s performance
• Support the decision making of the management and stakeholders
• Orient the selection of indicators to be reported
• Diversity of approaches and methodologies
Methodology for 2013
1
IDENTIFICATION
Business strategy
Investors perspective
Stakeholders inputs
2
PRIORITY
3
VALIDATION
Influence on stakeholder’s
appraisal and decision
Internal validation
Significance of impact (social,
environmental and economic)
External validation
(technical consultants)
Market references
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Itaú Unibanco
Sustainability
Business
Learnings and challenges
• Materiality: restriction method vs focus definition
• Stakeholders involvement: direct vs indirect
• Internal validation is critical
• Capitals reporting: balanced vs proportional
• Integration to the different reporting models
• Makes sense  reflects on business decisions
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Materiality for your own organization
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Poll question 3
What is your biggest challenge in determining material matters:

Answer 1 – Patchwork of definitions

Answer 2 – Difficulty in identifying intangible value

Answer 3 – Disconnect between financial and other data

Answer 4 – Investor/user decision needs unclear
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Answer 5 - Other
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Benefits and challenges of materiality

What are the benefits and challenges of determining material matters (concept
and process)?
Benefits
Challenges
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What is material?
Exercise


Rank a long list of subject matters on degree of importance to your value creation
Look back and reassess the draft of material items made during step 1 of “Your
roadmap to <IR>”
Importance to value creation (1-10)
Subject matter 1
Subject matter 2
Subject matter 3
Subject matter 4
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The materiality outcomes linked to your information hierarchy
What are the information
needs of the providers of
financial capital?
The high level “snap shot”
2 minute view
20 minute view
2 hour view
Integration and analysis of key information
2 day view
Materiality filter
The succinct story
A data set, to support analysis and
modelling activity
Confidentiality filter
What level of
transparency do you
want to provide to
providers of financial
capital?
Internal information set
What kind of
information hierarchy
do you want to create
for your financial
capital providers?
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Link materiality to your value creation

Exercise
Link your material matters to the strategic objectives or pillars, and performance
measures (PM) for your own organization
Strategic objective 1
Strategic objective 2
Strategic objective 3
Strategic objective 4
Material
matter 1
Material
matter 2
Material
matter 3
Material
matter 4
PM
PM
PM
PM
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IIRC technical project


Address confusion and provide clarity
Understanding purpose, subject matter, and how information might lead to
particular decisions by users appears to be critical in materiality process

Focus on practical application of IR materiality definition

Identify examples including of disclosure of the materiality determination process

Need input from organizations via project panel or wider network group: Please let
IIRC know if you would like to be connected to this project
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Recap and conclusion
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Key learning points


‘A matter is material if it could substantively affect the organization’s ability to create value in
the short, medium or long term’
Determine materiality based on the four-step process:
-
Relevance
-
Importance
-
Prioritization
-
Disclosure

Keep it simple, just start!

Learn from others about the challenges

Make sure you embed the material matters in your strategy and reporting

Participate in the IIRC Technical Project, contact: stathisgould@ifac.org

Read the International <IR> Framework – section 3d
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Thank you for your participation
Materiality Is Important in Preparing an
Integrated Report
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