Financial ReportWhen it comes to sustainability initiatives, materiality can be a key component of a company’s success. Companies are besieged with surveys, ratings, rankings and stakeholder demands for greater transparency and disclosure of their environmental, social and governance (ESG) performance. The demand for information is overwhelming, made more difficult by the varying needs of a wide range of stakeholders. Faced with limited resources in a world where some disclosures are mandatory and others are not, how do you break through the noise? That’s where materiality comes in.

Materiality is not a new concept; it is well-understood by the financial community and by companies thanks to established rules, processes and systems that are in place to comply with financial reporting mandates. But when you add sustainability to the mix, does materiality take on new meaning? I would argue that applying materiality to financial and nonfinancial performance together brings both into sharper focus.

Many companies struggle with prioritizing their disclosure because audiences for sustainability performance and financial performance can vary widely. As a result, there has been a rush to report an overwhelming amount of immaterial sustainability data that are not comparable or benchmarkable from company to company or sector to sector. Now, as the Global Reporting Initiative, Sustainability Accounting Standards Board and the International Integrated Reporting Council shift their core focuses to materiality, we can finally get on the same page and start speaking the same language. By doing so, we’ll also put our resources to more efficient use and give clarity to what good performance really looks like. And we’ll be better able to compare apples to apples.

At American Electric Power, we conducted our first formal materiality stakeholder survey in 2012. Management thought it was purely focused on sustainability at first, but the results proved that financial performance goes hand-in-hand with nonfinancial performance. Stakeholders — investors, employees, customers and non-governmental organizations — care about both. It was an eye-opening experience that gave us the opportunity to ensure that issues deemed material by our stakeholders also aligned with our business strategy and risks. Understanding the interconnectivity of financial and nonfinancial performance allows us to be more focused in our engagement and to allocate resources where there is the greatest opportunity for sustainable growth, while mitigating potential risks. That’s how materiality helps you set the right priorities.

If you’re planning on attending the Sustainability Summit in Kansas City on June 7, I look forward to hearing your thoughts on materiality and its importance when the conversation turns to sustainability. And if you’ve not yet registered to attend, we hope you’ll join us.

Image via SeniorLiving.Org 

Sandy NessingSandy Nessing has responsibility for managing sustainability strategy, corporate stakeholder engagement and annual performance reporting for American Electric Power (AEP). She oversees annual production of AEP’s Corporate Accountability Report, including a dedicated sustainability website and, new in 2013, an app. This is the fourth year AEP has produced an integrated report that combines financial with nonfinancial performance.

 

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green leafToday, dialogue surrounding a company’s sustainability performance often occurs in independent online communities. Each year, more public companies are being evaluated and scrutinized by green rating and ranking organizations. Participants in these discussions and individuals and organizations doing the rating, on their own initiative and in support of their own fiscal business models, assess companies with or without the companies’ knowledge or cooperation. These rating organizations publish and often push their data, which reflects your company’s performance, to your investors, customers, competitors and business partners.

As a result, it’s become more important than ever for public companies to proactively engage these raters in an effort to positively influence what these groups say. Without this engagement and participation, companies risk misinformation and miss opportunities for positive public relations in a communications space controlled by others. Some of the companies and organizations providing ratings and sustainability assessments include:

Newsweek Green Rankings®

Newsweek’s Green Rankings comprehensively assess the environmental performance of the largest publicly traded companies in the United States and around the world. Published annually since 2009, this project is the first effort by a major media organization to rank companies based on their environmental footprint, management of that footprint and sustainability communications.

Corporate Responsibility Magazine’s 100 Best Corporate Citizens

Developed by Corporate Responsibility Magazine and the Corporate Responsibility Officer Association, the 100 Best Corporate Citizens 2013 list starts with the Russell 1000® Index. All data must be publicly available in order to be included in the data set for this rating organization. The elements analyzed for this list include climate change, employee relations, environmental, financial, governance, human rights and philanthropy.

Climate Counts

Climate Counts is a collaborative effort to bring consumers and companies together to address solutions around global climate change. Its mission is to engage consumers on companies’ global climate change solutions and strategies. Climate Counts scores companies on how serious they are about addressing climate change and how they compare to their competitors. The organization’s annual scorecard reflects companies’ self-reported efforts, typically within corporate sustainability reports, to address climate change.

CDP (Formerly the Carbon Disclosure Project)

While all other rating organizations addressed here rank companies whether they choose to be ranked or not, the CDP is an opt-in rating organization. Any organization can respond to the CDP questionnaire. The CDP’s mission is focused on climate change and climate change strategy and encourages participating companies to be transparent about the strategy, risks and opportunities that arise from climate change, and calculating their greenhouse gas emissions.

Global Initiative for Sustainability Ratings

In response to the growing number of green ratings and rankings and in an effort to standardize environmental, social and governance-based rankings, Ceres and Tellus Institute developed the Global Initiative for Sustainability Ratings (GISR) in June 2011. GISR is not another green ranking organization but instead will accredit those meeting its sustainability performance measurement standards. Starting June 1, 2013, GISR will release its principles for public comment through July 31.

What You Can Do To Learn More

A significant part of our work these days involves collaborating with clients and assisting them in actively engaging with green rating and ranking organizations like the ones listed above. If sustainability performance is something you need to know more about, you should make plans to attend our Sustainability Summit, which will be held in Kansas City, Mo., on June 7, 2013. We’ve got a lineup of amazing speakers including folks from Dell, Ikea, Unilever, Kohler, ExxonMobile, American Electric Power, ISOS Group and more, all sharing their thoughts, success stories and case studies to help you move your own sustainability initiatives forward.

Register online now to secure your spot. While you’re at it, be sure to subscribe to the Burns & McDonnell World blog for news on the Sustainability Summit and related sustainability topics, including blog posts from some of our presenters. And if you’re on Twitter, follow @BurnsMcDonnell and hashtag #bmcdss13 leading up to and during the conference. We hope to see you there!

Candice Derks is a LEED AP, GRI Certified, RABQSA Certified sustainability specialist at Burns & McDonnell. She has implemented sustainability initiatives at Burns & McDonnell’s world headquarters facilities as well as for our clients.

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