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Steps to determining materiality in Corporate Responsibility strategy and reporting:

Materiality is a concept within the auditing and accounting fields relating to the importance of an amount, transaction or discrepancy. Information is material, according to international accounting standards, if its omission or misstatement could influence the economic decision of users—investors, regulators and suppliers—taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances and whether a reasonable person, relying on this information, would have been influenced by the omission or misstatement. Thus, materiality provides a threshold or cut-off point to guide companies in making decisions about what information to disclose.

What does this mean in the context of corporate social responsibility (CSR)? The main driver for discussing materiality in the CSR context is the increasing importance of sustainability reports. Studies indicate that publicly reporting social and environmental performance issues keeps a business on its toes: the process of building a public report is the single most important driver of change in how these issues are managed since it increases organizational knowledge, facilitates reflection and transforms policies and practices. Under the annual deadline for submitting metrics and numbers for the CSR report, the business manager focuses on the commitments made the year before and the pending public disclosure of how things have improved—or not.

However, transparency and the communication of material information are not confined to an annual CSR report. A materiality assessment is equally critical in setting a company's CSR strategic direction.

Here are tips to determining materiality and setting CSR strategy

• An essential first step in CSR strategic planning is to identify the material issues that your senior management must consider in order to minimize CSR risks and maximize opportunities. A first-rate CSR strategy provides a structure for managing all sustainability challenges and impacts, and puts responsible practices at the core of your business planning. This includes supply chain accountability, environmental impact assessment, governance, policy, stakeholder engagement, social community commitments and transparency.

• The heart of this strategy should focus on your company's supply chain:

  • what the company buys
  • whom it buys from
  • what it manufactures
  • who makes the product(s)
  • social and environmental practices throughout the chain.
• To assist in determining materiality, form a CSR report review committee, and recruit people who have expertise in labor, human rights, environmental, social, economic and diversity issues, and who are committed to transparency and multi-stakeholder engagement, to serve on it. Members of this committee must share an interest in supporting innovative efforts by corporations to address these challenging issues.

• Here's how you assess materiality for what should be included in your annual CSR report. Identify issues that reflect the company's significant economic, environmental and social impacts, or substantively influence the assessments and decisions of stakeholders. In this process, consult a variety of sources—both internal and external—as part of the materiality assessment. These sources include:

  • company objectives, strategies, policies, programs and risk factors
  • employee surveys and input gathered through various other feedback mechanisms
  • customer-contact feedback
  • shareholder resolutions and anecdotal feedback
  • input gathered through stakeholder dialogues
  • informal input from suppliers
  • media coverage and blog discussions of company issues
  • stakeholder feedback about the company's past CSR reports
  • GRI-recommended topics and data for inclusion

• After reviewing these sources, compile a list of the most material issues and prioritize them for inclusion in your report, based on:

  • the importance of the issue to—and potential impact on—the company
  • the importance of the issue to—and potential impact on—external stakeholders
  • the amount of reasonable control the company has over a particular issue.

Reporting is not an end in itself. It is only useful if it discloses publicly and formally your CSR strategy follows corporate action and facilitates change.