July 01, 2003
Simon Zadek & Mira Merme
Tomorrow's effective corporate social, environmental and economic reporting must communicate information that is 'material' to stakeholders in making coherent decisions and taking planned and timely actions relevant to their interests.
An appropriate redefinition of materiality is therefore essential for business managers, for policy makers establishing tomorrow's regulatory frameworks, and for those involved in their implementation and oversight.
Materiality isbeing redefined - through pressure on business from wider civil society, and through precedents established by company practice and, increasingly, regulation and litigation. But current experimentation in redefining materiality suffers from being ad hoc, often confused and confusing, and rarely credible. As a result, companies too often disclose information that is not used, incurring unnecessary costs without satisfying intended audiences.
There is a critical need to redefine materiality to the satisfaction of both business and its varied stakeholders, and to codify an agreed approach to ensure its demonstrable, consistent application. This would benefit both business and its stakeholders in settling expectations, converging practice, and enabling balanced comparison.
'Redefining Materiality' proposes a robust, practical and effective approach that meets the needs of companies' and their stakeholders, both those advocating broader business and investor responsibilities, and those primarily focused on financial returns.
Proposed is to broaden the definition of materiality to ensure that companies are sensitive to stakeholder concerns. The proposals are based on the AA1000 Assurance Standard's materiality principle that requires that 'the reporting organisation has included in its public report adequate information about its sustainable performance for its stakeholders to be able to make informed judgments, decisions and actions'.