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Dwayne Baraka's Ramblings on CSR
Top Tip – Master the Materiality Matrix:
Making CSR look Easy
Let’s be honest, a CSR materiality matrix isn’t an especially sexy thing. But if you do it well, then
CSR gets a whole lot easier, sale-able, profitable and maybe even creative.
When I train Executives on CSR or sustainability, the materiality matrix is front and centre. It isn’t
a perfect framework, but it goes a long way toward helping someone that has never had contact
with CSR understand and integrate CSR. And with CSR reports under fire for not delivering the
hoped-for outcomes, a more targeted version of CSR must be put forward if it is to survive.
Mastering the CSR Materiality Matrix
The materiality matrix, like the one by State Street at the top of this blog, is composed of several
elements. Gold stars to State Street for their presentation, its catchy and unique, which is not an
easy task when it comes to these things!
The short summary of the matrix is that it plots a variety of issues along two main axes:
importance to stakeholders and importance to the business. By triangulating those two main
elements, a business can give priority to issues in a way that will mean it meets stakeholder
expectations and its own business needs.
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The simplicity of that explanation is mocked by the complexity of actually completing one! In no
particular order, companies must do all of the following tasks before they can do a proper
materiality matrix:
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Identify Stakeholders, and what is important to them
Ask Stakeholders what their views are in relation to the company
Identify CSR risks using a series of lenses to understand the business from an outsider’s
perspective
Identify opportunities using the same lenses and perspective
For each risk and opportunity, identify the impact and likelihood of the respective event
Prioritise each risk and opportunity, including allocating responsibilities and resources for
the dual tasks of minimising risk and maximising opportunities
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Kesko’s materiality matrix: good presentation, but some gaps
You can see from Kesco’s materiality matrix above that the CSR lenses they have used are
Human Resources (dark blue), Responsible Purchasing and Selling (pink), Economic
Responsibility (purple) and Environmental Responsibility (cyan). If they were to ask me, I’d
suggest that they are missing a few things on their matrix, but the point is that they have used
some clear lenses to help them identify CSR issues, and done a nice job of categorising issues
and thereby making them easier to access and digest.
The risk for Kesco is that there are probably several CSR issues that are relevant to them but
because their set of filters isn’t comprehensive, they risk being blindsided by a significant issue.
It’s also worth remembering that social media means that something that isn’t a big issue today
could become a big issue in under a day.
They have also put the issues into three main bands (the blue rings on the matrix) and given
them something of a priority (numbers 1-20). This means that they are able to allocate business
resources in managing the issues, and more fundamentally where to begin on the CSR agenda.
Using a third dimension can also be a really useful and powerful way to communicate additional
detail, like the matrix from International Flavors and Fragrances Inc., which uses the size of the
circle to indicate how much damage could be done should they get the issue wrong. They also
ignore lower level risks, at least in terms of giving priority to other and more important issues.
International Flavours and Fragrances Inc’s Materiality Matrix: Good 3rd dimension, although
those lurking bubbles need a bit more attention
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TOP TIPS:
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Pick CSR lenses that help your business see issues that it might otherwise miss
Think outside the box
Identify as many CSR issues as you can sensibly get to (and take the views of
stakeholders in doing so)
Find the third dimension!
TRAPS:
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Don’t be overcommitted to any particular CSR framework – it’s all about how the company
impacts others and how others impact the company
By the way, if you do a half decent job of a materiality matrix, you’re already some of the way
toward being able to meet GRI’s G4 guidelines. Also, a solid materiality matrix will also help
when it comes to talking to the investment community. They want to know about the most
material issues for your business. More of that as the series continues.
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Materiality Matrix: The X and Y Axis
(Impact - stakeholders and business)
Constructing a CSR Materiality Matrix is one of the most useful things that a CSR professional
can do. Getting stakeholder’s perspectives right is as important as getting the business
perspective right.
Mastering Materiality and Stakeholders (The X Axis)
One of the biggest traps companies fall into in relation to a CSR Materiality Matrix is using their
own views on stakeholders and what matters to them. Nothing helps to clarify the position of a
stakeholder better than a direct conversation with them.
Virgin Media’s Issues diagram
It’s also important to understand that different stakeholders think very different issues are
important, as shown in Virgin Media’s stakeholder concern diagram (above). Such a diagram
forms the basis of stakeholder concerns, the first axis on the CSR Materiality Matrix. Vodafone is
another company that is leading on stakeholder engagement and reporting, and Statoil have
done an amazingly good job for a first-time reporter in the last 12 months.
An important lesson from all of those is that while at times it can be useful to have a third
party mediate the conversation, nothing can replace direct contact with stakeholders. The trio
above have all used a combination of both direct and indirect interactions.
It can also be useful to aggregate issues into a collective graph, as SAP have done (below).
Small warning though – a really upset stakeholder can make the issue much bigger than a graph
like this might otherwise suggest. Don’t forget the value of unmitigated passion, especially when
it comes to civil actors.
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SAP’s Stakeholder’s Top Issues Chart
But perhaps the example of par excellence in this area is Co-operative Group. Their inputs into
stakeholder mapping include things like ‘societal norms’, ethical policy reviews and input from
local community groups.
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Co-operative Group’s CSR Materiality Matrix inputs
And for each issue they identify, they tell readers of their 2011 sustainability report how the
issue links to stakeholders and the effect on the business of dealing with the issue well (or
sometimes badly). More on how to use a CSR Materiality Matrix to communicate in Part 3 of this
series (not yet published).
TOP TIPS:
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Talk directly to your stakeholders
Be open about who your stakeholders are
Get in at least one stakeholder that will challenge the way your company thinks
Understand the different views that stakeholders have and areas of commonality
Seek stakeholders to represent issues or voiceless stakeholders (such as the environment)
TRAPS:
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Don’t think that you know stakeholders so well that you don’t need to talk to them directly
or that their responses cannot surprise you
Mastering Materiality and Risk / Opportunity (The Y Axis)
Many CSR professionals don’t have a great understanding of standard risk frameworks. That’s
not really their fault – many are from professions that focus on other things – however it is a key
skill in relation to the CSR Materiality Matrix. Smart CSR professionals know how to assess risk
(and opportunity which is the other side of the same coin) and use risk and opportunity to help
their business make more sustainable decisions.
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A fairly standard version of a Risk matrix – the foundation of the other Axis for a CSR Materiality
Matrix
Risk is essentially a combination of the likelihood that an event will occur along with the severity
of consequences if it does occur. By combining severity and outcome, a business can rationally
make assessments about which risks should be given priority. The Risk framework gives the
relative importance to the business – the second axis for the CSR Materiality Matrix.
It’s also important to understand that things like climate change totally change risk modelling –
floods that use to happen every 100 years might now happen every 10 years, and therefore both
likelihood and severity change.
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MTR’s CSR Materiality Matrix framework
Hong Kong’s MTR has mapped the conceptual inputs into a CSR Materiality Matrix (above),
which successfully identifies risk impact and likelihood along two separate dimensions. Ultimately
I think that the 3D aspect complicates viewing the matrix, but it may help some to grasp the
relationships between the two parts of risk and the dimension of stakeholder influence.
TOP TIPS:
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Marry CSR risks to the regular risk processes
Use the CSR risk framework to identify opportunities and be entrepreneurial
Use the understanding of risks and opportunities to build the business case for CSR
TRAPS:
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Don’t let the use of the word ‘materiality’ be a barrier (see part 4 of this series – Lawyers,
Directors and Risk (not yet published))
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Materiality Matrix: The Business Case
and Communications
Mastering Materiality and the Business Case
The best example of a publicly disclosed business
case for CSR is that by Marks & Spencer.
Now I don’t usually make such grandiose claims
- preferring ‘good’ to the superlative ‘best’. But I
promise that’s not an overstatement by me – it is
currently the only fully fledged and separately
documented business case for CSR published by
anyone!
Their report (Plan A Business Case) is separate to
their CSR report (How We Do Business) and details
their commitment to measuring and managing CSR. It
also has some wonderful insights about their learning
on CSR and reporting.
It seems that the old MBA adage that if you can’t
measure it you can’t manage it, is true here also. If
the experience of M&S in building the business case
for CSR is anything to go by, then companies must
take measurement of CSR seriously.
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Marks & Spencer’s ability to identify the value of their CSR initiatives is unmatched by anyone
(including the £105m. Net Benefit identified above), although Unilever is close behind, and
several others are talking about business benefit in a way that we didn’t see a few years ago.
ASDA are starting to put their head above the parapet and talk about this too, and using a similar
number (£100m.), although over a longer time span (since 2005).
It is also worthy of note that Marks & Spencer have certain categories of business benefit that
they will not publicly put a number to. For example, they wont put a number on additional
employee engagement, presumably because to do so would undermine the additional motivation
that employees have found because of the CSR agenda.
They also spend quite a bit of time in the report talking about how they have moved investors
and their understanding of the importance of CSR to revitalising their business.
The Business Case report is an evolution for them – their 2010 How We Do Business report
contained snippets of the Business Case for CSR throughout every are of their report, and was
based on their own assessment of materiality of CSR issues to the business.
Spelling it out – Why the Business Case Matters
The business case is crucial because it will assist with aggressive targeting of future
performance and return on investment indicators. The experience of many companies is that
tracking investment shows that CSR is not just entirely appropriate, but a really good investment.
But ROI on CSR varies not just sector to sector; it varies from company to company and strategy
to strategy across business units. So companies need to ensure they effectively measure and
manage their CSR investments. In a sense, M&S took a leap of faith by investing £40m. per year
in sustainability. Turns out it was one of their best investments in that time period.
A good Business Case is also core to winning hearts and minds within your company, which is
itself an important part of the journey to becoming a more sustainable company. It is also a vital
part of communications with stakeholders and also with investors, who are increasingly
sophisticated when it comes to CSR.
A good Materiality Matrix will clearly identify the things that you need to measure in order to
calculate the business case for CSR. The business case will also form the basis of Integrated
Reporting, if that is a priority for you.
TOP TIPS:
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Use the materiality assessment to begin measuring CSR activity and the effect of CSR on
current business practice
The Materiality Matrix is likely to identify the biggest business wins from CSR
Connect business benefit to CSR and talk about it with investors and also with staff
TRAPS:
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Doing CSR only because it’s the ‘right’ thing to do is a path to potential disaster, especially
if the winds of change blow through the business and key senior staff change.
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Materiality and Communications
Once the materiality matrix is formed, it should be used as an input into communications for
stakeholders. All of the most relevant issues to stakeholders should be addressed, especially if
the company is giving priority to some issues before addressing others. Companies should also
be clear about the issues that are being addressed now and issues that will be addressed in the
future. Such transparency builds trust and consequently brand value.
Communications ‘101’ says that in order to communicate with anyone, you need to segment
potential audiences. CSR Communication is no different. The CSR Report is something of a
necessary evil (in that it adds to the impression of transparency and commitment to being
responsible), but it should be the basis for addressing CSR issues within a wider
communications strategy. Like Radley Yeldar says “If your company is like most, your report will
only be read by a minority of your stakeholders” and you will need to supplement
communications with more targeted messaging if they are to reach intended audiences. Having
spoken to stakeholders, you now know what they want to hear about, so tell them!
Radley Yeldar’s “How does it stack up?” Report 2013
Radley Yeldar’s ”How does it stack up?” report should be compulsory reading for anyone who
wants to know who is leading the pack in terms of sustainability communication. They conclude
that HSBC, Unilever and Kingfisher are leading the pack in terms of communicating their material
issues and how CSR is connected directly to their business. I don’t disagree with their
assessment, and am going to hear more at their Event discussing their findings in July!
The Materiality Matrix also helps to identify the business case for CSR in your business, which is
in itself an important thing to talk about with your stakeholders and investors. Investors care
about sustainability (thanks PwC), however they are not a ubiquitous market, and it seems that
different investors (perhaps enamoured of their own secret recipe) look at different things, so
even treating the investment community as a single communications audience is a mistake.
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Of course, I’d heartily recommended that you look beyond this blog for ideas about CSR
reporting; particularly to Elaine Cohen’s CSR Reporting blog (particularly at 31 ways of looking at
materiality) and the market insight of Radley Yeldar, who have almost a decade of conclusions
about CSR reporting.
TOP TIPS:
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Use the materiality matrix to frame the CSR communications strategy
Use the materiality matrix to frame the overall communications strategy
Use insights from stakeholders to change business behaviours
Honesty breeds credibility – if an issue matters and you aren’t tackling it yet – tell people
why and when you might get to it
TRAPS:
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Assuming that one single CSR report can address all stakeholder concerns is a bit naïve
Don’t underestimate the power of social media to derail efforts to control perception of the
company
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