Materiality is coming up a lot in the Sustainability conversation.
Including at last month’s Responsible Business Summit USA in New York City. TriplePundit.com contributor Raz Godelnick just posted an article recapping some of the CSR executive conversations about reporting.
Let’s talk about this word “materiality.”
In the accounting and finance worlds, materiality means how important an amount, transaction, or discrepancy is to the business.
When you talk about materiality in financial statements, you are asking about all the things that have to go into the report that really, truly matter. Reporting on all material aspects gives you the best possible view of what or how a business is doing.
Materiality is about measuring and accounting for all the actions that positively or negatively impact a business’ growth or success.
Even though most of us don’t produce 10-K forms and hold shareholder earnings calls, I’d hazard that anyone who has owned or operated a small business intrinsically understands this evaluative process.
As a simple example, what’s material–most important–about investing in a dog boarding and walking business? To properly evaluate the business, you need to know how much the business costs to run. How much are employees paid? You’ll want to see records of how client dogs are fed, watered, and exercised on a specific schedule. You might also add other measures such as the age and experience of employees, specific training, or criminal background checks. These are the essential, or “material,” elements you measure to make a decision.
While it might not have mattered as much 10 years ago, today you might also want to know about the energy and environmental impacts related to the business. These might include gas consumption for getting to and from clients, or what chemicals are used to keep the facility clean and sanitary. How do these “green” issues positively or negatively impact the business’ success?
(In case you’re wondering, there are several “green” dog-walking and boarding businesses out there, including this one.)
That’s what’s happening large-scale in the business world. As the Sustainability field grows from a sidebar conversation to front-and-center discussions, Sustainability practitioners are finding new opportunities to materially contribute to business success.
One way to make this happen is through collaboration with business colleagues to mesh corporate responsibility initiatives with strategic goals. Here’s a great article about how Dell’s Sustainability team is doing exactly that.
Via MIT Sloan Management Review:
Sustainability as a domain is moving in the direction of “materiality” — information that is relevant or “material” from the point of view of stakeholders and investors. And Dell, the computer and technology company, is working to make itself well-positioned to make the link between its initiatives and outcomes.
How? Against the trend of Sustainability teams moving under the CFO, Dell’s Sustainability team resides in a surprising place:
“We report into the global marketing organization,” says John Pflueger, principal environmental strategist for Dell. “That may sound weird to some people, but I actually think it’s a fantastic place for a sustainability organization to sit.”
The rest of the article is well worth a read for how the Dell team leverages its organizational positioning to positively impact packaging innovation:
At Dell, the sustainability team, working with suppliers and recyclers, has developed new compostable packaging materials made from bamboo and mushrooms. As John Pflueger, Principal Environmental Strategist, says, “It’s absolutely amazing.”
They experimented with the material, and they actually found a way to use bamboo as a raw material for manufacturing packaging. Now, I don’t think we use it on any of our big systems, but right now, 70 percent of notebooks ship in bamboo. Its structural strength makes it great for shipping our high-tech products.
These creative solutions are easy to see as “green” or environmentally friends. But more importantly, they grew out of several material concerns that have to do with bottom-line costs and supply chain security:
This followed a few high-level principles that we wanted to put into place. One, he wanted packaging material to be sourced near the point of use because he didn’t want to spend a lot of time and effort or fuel moving cardboard or some other packaging material across the world. Two, he wanted a material that was easy to replace.
How much does it cost to make and ship packing materials?
What materials will be available today and for the foreseeable future?
And only then, as a third priority, does the outwardly “environmentally friendly” aspect of the solution show up to reduce waste and carbon impact at the end of the packing material’s life cycle:
And three, he wants something that’s recyclable and compostable.
By linking Sustainability initiatives to outcomes on the executive dashboard, Dell is proving the case for how environmental stewardship materially contributes to a company’s success.