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Sustainability

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What Materiality and Risk Identification Offer for Retail

The most widely used definition of materiality, from the Global Reporting Initiative, defines material topics as those "that reflect the organization's significant economic, environmental and social impacts, or, substantively influence the assessments and decisions of stakeholders." Gap Inc. defines materiality "by the degree to which an issue is significant to society and our interested stakeholders, and the degree to which it is relevant to Gap Inc.'s scope of operations and ethical commitments." For its materiality assessment Best Buy seeks the "intersection of where stakeholders want Best Buy to lead and which issues significantly affect our business."

Assessing Materiality

Many retailers, as well as multinational corporations across other sectors, conduct materiality assessments to identify the specific sustainability topics that are most important to their business. Companies use this information to inform business decisions and to focus their external reporting.

Considerations for Retailers

Inform business decisions. Assessing the materiality of each sustainability topic uncovers the opportunities and risks that arise from the many ways retailers interact with society and the environment. Companies use this information to inform business decisions and direct resources to what matters. As an example, Gap Inc. keeps executives and board members updated on the topics most material to its business, which "informs… business strategy and enhances its implementation." As a second example, Best Buy adjusted its business offerings, based in part on its 2014 materiality assessment. While the assessment reinforced Best Buy's existing activities, it identified "helping customers choose more sustainable products" as a topic the company is now putting more focus on.

Sustainability topics most material to retail *  
1.       Environmental impacts of transporting employees as well as products, other goods and materials 6.       Energy conservation and efficiency savings achieved
2.       Percent of suppliers, contractors and other business partners screened for human rights practices, and actions taken 7.       Full-time employee benefits not provided to temporary or part-time employees, by major operations
3.       Percent of products, and life cycle stages, assessed for health and safety impacts 8.       Indirect GHG emissions by weight
4.       Indirect energy consumption reductions achieved 9.       Number of incidents of product health and safety non-compliance with regulations or voluntary codes, by type of outcome
5.       Products and packaging percent reclaimed by product category 10.    Greenhouse gas emission reductions achieved


A 2014 study of sustainability reports ranked the materiality of 84 topics, according to how fully the topic was covered in external reports from 40 retailers that include Ahold, Best Buy, Delhaize Group, Marks & Spencer, Metro, Migros, Staples, Target, The Kroger Company, Wal-Mart, and Woolworths Limited. In addition to the ten topics listed above, child labor, prevention of forced labor, freedom of association and collective bargaining were also among the top topics for the retail sector. A separate survey conducted in 2012 (p. 65) also offers guidance for retailers, presenting the 33 topics that financial markets and civil society deemed most material within the retail sector.

Inform reporting. Many retailers use the results of materiality assessments to focus their sustainability reporting. Investors analyze company reports on sustainability risks and opportunities in their investment decisions, and they have greater confidence in information from companies that have conducted a materiality assessment. In 2014, nine U.S. retailers and over 75 retailers worldwide conducted materiality assessments that informed their public sustainability reports. In the same year 14 U.S. retailers included non-financial information on material sustainability topics in their financial filings, as well as details on how each topic "impacted the company's… business risks and opportunities." These retailers include Costco, Lowe's Companies and Whole Foods Market. The risks related to management of the workforce, customer privacy, supply chain risks, and climate change were among the topics included in 10-K filings of Best Buy, Walmart and others.

Materiality Assessment in Retail Chart
Figure 1. Materiality assessment in retail, by the number of external sustainability reports which include a materiality assessment 

​Source of data: database.globalreporting.org

Over 70% of S&P 500 Index companies issue sustainability reports and the most widely used reporting framework—the GRI—requires the reporting company to conduct a materiality assessment. Materiality assessments are also incorporated into new accounting standardsEuropean legislation, stock exchange requirements, and other sustainability reporting frameworks. There is one clear reason materiality is gaining attention. Companies and their stakeholders want to focus only on what matters most, in order to provide decision makers with the most pertinent information.​

How Does Retail Assess Materiality?

Two main steps—identify and prioritize—are involved in assessing materiality. To identify important topics, it is common to consult a range of stakeholders and to list key environmental and social impacts arising from operations. Effective engagement "solicits a diversity of perspectives including those of investors, local communities, indigenous groups, customers, employees, contractors, suppliers and civil society" (such as unions, non-governmental organizations). Research by the Norwegian Business School BI found a majority of companies run stakeholder focus groups, converse with individual stakeholder groups, or both.

To prioritize topics, companies weigh the strategic importance to the business, importance to stakeholders and the scale or nature of any impact on the environment or society. A majority of companies assess how a topic will impact business operations and how it will impact reputation, as part of the prioritization process. RILA prioritized 29 topics for the retail industry, in terms of their importance to retailers and to stakeholders.

Without a common, retail-specific approach to assess materiality, organizations like the GRI offer direction. The latest GRI G4 guidelines provide an approach for companies to assess material issues. They state a reporting company “must engage with internal and external stakeholders, and consider in that dialogue what issues… are considered by these stakeholders to be material.” The guidelines also provide Principles for Defining Report Content, with criteria for testing whether a topic is material. "In defining material [topics] the organization takes into account the following factors":

  • Sustainability-specific impacts, risks or opportunities
  • Interests of direct stakeholders (employees, shareholders, suppliers) and indirect stakeholders (local communites, civil society)
  • Values of the organization
  • Insights and knowledge within the sector
  • Compliance with regulations and voluntary agreements
  • Risks to the organization
  • Ability of the organization to act, influence or contribute.

For additional guidance, retailers can learn from the range of activities within the retail sector. A snapshot of assessments conducted by CVS, Target, Lowe's and Best Buy reveal that they included surveys, interviews, addtional research and in some cases, collaborations with a third party.

Materiality Assessments at Four Retailers

BEST BUY

Materiality assessment in 2014 with Ceres, including internal and external surveys and interviews to identify priorities:

  • E-waste
  • Human rights
  • Carbon emission reduction
  • Sustainable products

LOWE'S

Stakeholder engagement to identify material topics:

  • Community investment
  • Employment
  • The environmental footprint of our stores, operations and products
  • The labor and environmental standards of our suppliers

TARGET

Materiality assessment in 2012 with BSR, updated in 2014 with Cone Communications. Also qualitative and quantitative research to identify priorities:

  • Climate change and resource scarcity
  • Value chain material use, responsible sourcing, and social compliance
  • Transparency
  • Corporate giving
  • Health & well-being
  • Great place to work
  • Safety and preparedness

CVS

Materiality assessment in 2013. Strategic priorities and supporting goals developed around highest priority topics:

  • Patient and customer safety
  • Accessible and affordable health care,
  • Information security and customer privacy
  • Managing our carbon footprint
  • Prescription drug abuse and disposal
  • Tobacco cessation​

Maturity Steps for Materiality & Risk Identification

To enable retailers to benchmark their activities, RILA provides the RILA Retail Sustainability Management Maturity Model. The model includes a specific dimension on materiality:

Level of MaturityActivities at that maturity stage
Starting
  • Ad hoc efforts to identify sustainability risks and opportunities
Standard
  • Assesses risks and opportunities through a formal materiality process including stakeholder consultation
Excelling
  • Assesses risks and opportunities and conducts bi-annual review
  • Assessment incorporates a timeframe of 3-6 years
Leading
  • Individual departments (e.g., sourcing, operations) review materiality assessment
  • Uses the same processes to review sustainability risks and opportunities as corporate risks and opportunities
  • Assessment incorporates a timeframe of 6-10 years
Next Practice
  • Integration of sustainability and corporate risks
  • Assessment incorporates a timeframe of more than 10 years

Additional Information

Additional relevant resources, case studies, and collaborative opportunities are listed below.

Resources

Educational tools

Case Studies

Retailer deployment examples

Get Involved

Collaborative opportunities & other resources


Visit www.rila.org/sustainability for more tools and resources.​

Last Update: 8/30/2016 8:35:32 AM