Leading in a "Material World" - The Sustainability Outlook 2013 Survey

How was your 2012? For most companies, it was a turbulent year, with a storm of the century in the U.S.; the Eurozone’s existential moment; crises at suppliers and banks; and citizen protests on every continent. More of the same is expected in 2013.

Intensifying disruptions are leading more businesses and their stakeholders to question their corporate responsibility and sustainability agendas. Indeed, AccountAbility’s Sustainability Outlook 2013 survey found that companies are being proactive about addressing sustainability in the coming year. But it won't be easy to move the needle, with economic uncertainty pressuring budgets and sustainability investments needing to demonstrate returns.

Doing more with less on sustainability matters is one of the clear findings from our survey. Of the sustainability executives we interviewed, 60% said sustainability was becoming more important for their organizations – but just as many didn’t get bigger budgets.

So businesses can’t simply add new sustainability activities. Instead, they’ll need to rethink their approach with a focus on material issues – those issues that significantly influence the decisions, actions and performance of an organization or its stakeholders.

Five priorities where materiality matters

You can’t be all things to all people. But you can still make a big impact – if you focus on materiality first. Results from our survey point toward five priorities:

1. Mainstreaming sustainability across your organization was the top sustainability trend for 2013 in our survey. Sustainability initiatives are being embedded into functions like R&D, line operations, finance, HR and even supply chain operations outside of the company’s direct control. To succeed, you’ll need to:
   
   • Apply a laser-like focus on material issues to provide a filter for setting priorities;
   • Articulate a strong business case that supports the investment and builds awareness and commitment at all levels; and
   • Leverage talent and leadership development and training strategies to build the capacity to integrate sustainability across business units.
      
2. Improving stakeholder relations was another priority in the survey, as economic and political volatility drive increased activism, media scrutiny and mistrust in institutions. To improve stakeholder relations, first identify key stakeholders – those most relevant to your business – and then engage them more strategically. And “engaging” doesn’t mean broadcasting; it means having a two-way dialogue. Robust stakeholder engagement, as advocated by the AA1000SES guidelines among others, demonstrates accountability to stakeholders and can provide the information and intelligence to improve strategy, performance, communications and risk management. It also builds trust and goodwill, which can go a long way toward reducing reputation risk should things go wrong.
    
3. Increasing organizational reporting and transparency goes hand-in-hand with the need for improved stakeholder engagement. Results from a December 2012 study conducted by the Governance and Accountability Institute showed that 53% of S&P 500 companies are now publishing Corporate Social Responsibility reports, up from 19% in 2011. That said, today’s audiences don’t want more information; they want better information in the right context. So focus on communicating what each stakeholder, be it customer, shareholder or regulator, considers material.
    
4. Organizing your network of suppliers can result in opportunities for innovation. As structured supply chains give way to dynamic networks, command-and-control leadership must give way to new forms of collaboration in order to capture those innovations. The challenge is focusing the network on material issues to generate buy-in and build consensus on a strategic direction. These are essential conditions for managing supply chain risks and ensuring business continuity.
    
5. Aligning governance structures to clarify roles, responsibilities and accountability is an emerging need as these other priorities take hold and sustainability becomes more integrated in operations. Having the right measurement tools, metrics and oversight are necessities. Governance that focuses on material issues across the organization helps cross-functional groups work out sustainability strategies collaboratively.

The common denominator across these five areas is having a clear focus on the issues material to your organization and your stakeholders. It’s not as easy as it sounds. Companies need to take a careful look at how they identify material issues. Some guidelines are useful. The AA1000APS, the Global Reporting Initiative, and work underway in the US by the Sustainability Accounting Standards Board can all be very helpful in this regard. And the Dow Jones Sustainability Index is a benchmark where materiality is also very prominent.

Those are valuable starting points, but of course you need to tailor them to your business. In practice, we’ve seen companies use a wide variety of methodologies and levels of precision to identify material issues, some more effective than others. Getting more for less from your sustainability program can be done – but only if you first take a rigorous and performance-based approach to materiality.¹

To learn more about AccountAbility’s Sustainability Outlook 2013, contact research@accountability.org

[1] See AA1000APS for best practices on materiality (http://www.accountability.org/standards/aa1000aps.html) and AA1000SES for best practices on stakeholder engagement  (http://www.accountability.org/standards/aa1000ses/index.html).