What Materiality Assessments Are and Why Food Retail Companies Need to Take Them Seriously
August 1, 2023 | Peter Cooke
Do you want to make your company’s operations more efficient, profitable, and sustainable?
If you answered yes to this question—and I imagine most would—then it’s essential that your company completes a materiality assessment. “Materiality” is fancy way of saying what’s most important or relevant to a business. A materiality assessment identifies and prioritizes the environmental, social, and governance (ESG) issues that matter most to a company and its stakeholders. It gathers input from internal and external stakeholders to define how and why these issues are important—both quantitatively and qualitatively.
A robust materiality assessment can benefit a company in many ways. Consider these benefits:
- It can yield valuable data and insights to inform a company-wide long-term sustainability strategy along with effective ESG reporting practices to support that strategy. Numerous business case studies have demonstrated that robust sustainability strategies—including workplace practices and reporting—will increase operational efficiency and profits while lowering risk.
- It can increase transparency with stakeholders (such as internal company departments and suppliers), cultivate collaboration opportunities with them, and identify resources to be harnessed in ESG and sustainability initiatives. A great deal of work is involved in advancing ESG efforts, and no single team or company can do it alone. Partnerships are essential for progress.
- It can enhance insurability. Insurance companies increasingly want to see evidence that companies are effectively managing risk with a strategic approach to ESG.
While materiality assessments provide value for companies in any industry, they’re particularly valuable in the food retail sector. Food retailers face a large number of distinct ESG issues—avoidance of greenhouse gas emissions, food waste reduction, sustainable sourcing, human rights, supply chains, and energy efficiency. They also operate numerous sites across different geographical regions, and the ESG issues may vary from region to region. Given limited resources, these factors can make it difficult for a food retailer to focus and prioritize efforts.
A materiality assessment directly addresses this challenge by producing a list of a company’s priority ESG issues, ranked in order of importance. The ranked list can serve as a starting point for developing ESG strategies and implementing ESG initiatives in a systematic manner.
The need for materiality assessments in food retail is significant. Based on my conversations with industry stakeholders, the vast majority of food retailers have neither completed an assessment nor benchmarked their stores against an operational ESG standard. As a result, most companies have a limited understanding of sustainability practices and priorities at their stores and tend to manage sustainability in a haphazard way—rather than with a strategic, systematic approach.
How is a Materiality Assessment Conducted?
A materiality assessment should be a facilitated process. As a first step, a company should engage a facilitator with experience facilitating materiality assessments. The facilitator should be able to guide the company through the full process.
Another early step is pulling together an internal team of 5–10 employees to drive the materiality assessment. Ideally, the team should be diverse, with representation from several company departments, not just sustainability. Many different departments—such as operations, custodial, legal, procurement, human resources, and marketing—can contribute valuable information and insights.
There are different methods that can be used in a materiality assessment. These include facilitated interactive workshops with the materiality assessment team as well as interviews and surveys with internal and external stakeholders. For a given company, certain methods may be more suitable than others. A skilled facilitator can guide a company to the most suitable approach based on the company’s unique culture, business models, geography, stakeholders, and other circumstances.
A key point here is that a good facilitator guides a company as opposed to deciding what a company’s most important ESG issues are. A process in which a company’s own staff comes to important sustainability realizations is more impactful, as this creates internal buy-in. And when there’s buy-in, a company will be empowered and motivated to act on its priorities.
An alternative approach—and some companies do this—is to hire a consultant to conduct the materiality assessment and determine the ESG issues that should be considered most important to the business. In this case, the consultant identifies the priority ESG issues based on an analysis of company data. I have observed that companies are much more likely to make meaningful progress on their priority issues if the issues are defined by an internal team in a facilitated process.
Here’s a real-world illustration of the importance of buy-in. Several years ago, I was facilitating a company team through a materiality assessment, and the team ranked as their #1 ESG issue something I considered to be insignificant. While I initially considered recommending that the team select a more significant issue for the #1 slot, the facilitation process revealed the team’s desire to work on an issue that would lend itself to a short-duration initiative and a quick win—something to give the team the confidence to take on more complex, time-intensive initiatives in the future. As it turned out, the team accomplished its objectives on this issue in just a week and moved on to the #2 priority issue with a lot more enthusiasm.
Through a series of facilitated interactive workshops, a company’s materiality team develops a ranked list of priority ESG issues before developing action plans to address those issues. During the ranking process, the team may need to gather and verify quantitative data on a company’s greenhouse gas emissions, its energy and water use costs, and cost savings generated by existing sustainability practices and initiatives. The team can also inform the ranked list by providing qualitative insights, such as an issue’s public perception and the ease of implementing a measure or initiative. The final ranked list typically contains 12–20 ESG issues.
The materiality team can get feedback on the list through interviews and surveys with internal and external stakeholders. The stakeholders may recommend changing the rankings or adding other priority issues. They may also have helpful input on how the company should approach its priority issues. Since interviews are time-intensive, use them for the most important stakeholders, and take advantage of surveys to gain a broader view of your stakeholders’ perspectives.
What Happens After a Materiality Assessment?
When the ranking process is complete, the next step is for the team to select the top issues from the long list for action planning. Select a manageable number of issues. Companies can usually work on initiatives for one to three issues at the same time. If you try to make action plans for 10 issues, you’re unlikely to make much progress on any one of them.
Action planning involves a series of meetings—ideally, facilitated workshops—with the materiality assessment team to develop realistic objectives for each priority issue as well as detailed plans to achieve the objectives. For instance, a company that identifies energy efficiency as a priority issue may define an objective to reduce energy use by 5% by a certain date. Initial actions to achieve the objective may include gathering two years’ worth of energy bills to establish baseline usage, researching best practices, and planning the implementation of five new operational measures to reduce energy use. For each action, the plan should identify responsible staff and target dates for completion. Make sure your company has the resources to make meaningful progress on your action plans.
The most effective ESG initiatives are informed by good data, which is why some of the initial steps in action plans may be information-gathering. I recently facilitated an action planning workshop with a company that was eager to launch a waste reduction initiative. Before developing a plan for the initiative, I encouraged the team to first gather basic data on the company’s current waste management activities—in particular, how much waste is being generated and where it’s being generated.
One key data point was the number of dumpsters managed by the company. While the team was certain that there were 25 dumpsters, the first action plan task I recommended was to verify the data’s accuracy by mapping out each dumpster’s location. As it turned out, the company only had 24 dumpsters. For seven years, the waste management provider was overcharging the company on a weekly basis for a nonexistent 25th dumpster—at a total cost of $15,000.
After an action plan is developed, it’s beneficial for the team to have monthly follow-up workshops to review the status of each action item and ensure initiatives stay on track. When the team has either completed the plan’s high-level objective or is at a point where it is satisfied with that particular issue’s status, the issue can be moved to the bottom of the long ESG priority list. Now, the company can start developing an action plan for the next ranked issue on the list.
If a company selects the top two issues from its ranked list of 20 ESG issues for action plans, what happens to the other 18 issues on the list? The answer depends on the company’s available resources for taking on sustainability work. Small companies may not have the bandwidth to work on the other 18 issues until action planning has resolved one of the two issues. Larger companies may have staff that engage with lower-priority issues as part of their daily job activities. These staff can spend time gathering and quality-checking data relevant to lower-ranked issues. As action plans for the top issues are completed, the lower-ranked issues will get bumped up the list. By the time action planning for these issues begins, the company will be well prepared with good data.
A materiality assessment should be considered a living document. Given that company circumstances, stakeholder priorities, and sustainability trends are continually changing, a company should review its materiality assessment at least every year and make adjustments if necessary. Every several years, the company should complete a new comprehensive assessment.
How Ratio Institute Can Help
Ratio Institute provides comprehensive services to help food retailers embark on a materiality assessment of their company or business. Our services include facilitated workshops to identify and rank a company’s most important ESG issues, surveys with stakeholders, facilitated workshops to develop objectives and action plans for the top issues, and monthly follow-up workshops to track progress on plan implementation.
Why select Ratio Institute for your materiality assessment? We have decades of experience facilitating these assessment processes and driving real change at companies. As a mission-driven nonprofit organization focused solely on supporting ESG efforts in the food retail industry, we can serve as a partner to food retailers on their ESG journeys. A for-profit consultant that provides materiality assessments for numerous industries is far less likely to assume a partnership role. Our specific expertise in ESG, materiality assessments, and sustainability benchmarking in food retail enables us to identify the most suitable set of tools, practices, and strategies for the companies we partner with. Contact us to learn more!