With the obligation to report on sustainability, many companies are wondering how best to proceed
A look at the sustainability reports of listed companies can be worthwhile here. These always offer a fund of interesting insights and methodologies. One such methodology is the Materiality Matrix or materiality analysis, which are often carried out in the context of Sustainability reporting and a strategic steering instrument to identify and present important stakeholder issues. With the Corporate Sustainability Reporting Directive (CSRD), the establishment of such a document has also been mandatory since 2024.
Table of contents
1. What is a materiality analysis and materiality matrix?
In a nutshell, the Materiality analysis assessed in a materiality matrix which topics are relevant for the sustainable corporate development are relevant. Here, the view of the Company Stakeholders and the company's view with a focus on the Success self.
2. Where can I find the materiality matrix?
The materiality analysis in the form of the materiality matrix can be found in the Sustainability Reports published by the undertakings ( see Deutsche Bank (PDF, from p.23), VW (PDF), Siemens (PDF)) or Deutsche Telekom . In the case of voluntary reporting companies, the non-financial part of the Annual report .
But there are also companies that put the topic prominently in the foreground. SAP can be mentioned as such a positive example ( see here ), which we would also like to use here as an example and which is also suitable as a template for creating your own materiality matrix.
3. Why is the materiality matrix defined in the context of sustainability?
Although a materiality matrix is also suitable as a general strategic management instrument, it is usually used with sustainability reporting. A major reason for this is that the definition of the materiality analysis or materiality matrix goes back to the Global Reporting Initiative (GRI). This has set itself the goal of setting corporate standards for sustainability reporting.
The "GRI G4 guidelines" state: "Material issues are those that have a direct or indirect impact on an organization's ability to create, preserve or mitigate economic, environmental and social value for itself, its stakeholders and society as a whole."
Further sustainability goals result from the 17 United Nations Sustainable Development Goals (Sustainable Development Goals) :
Many companies also measure themselves against these goals and use the icons shown in their reports.
4. The materiality analysis or materiality matrix using the example of SAP
4.1 What does a materiality analysis or materiality matrix look like in practice?
To illustrate this, we refer to the example of SAP AG's materiality analysis from 2020. Where there are differences, we also show the matrices of other companies.
The materiality matrix consists of the x-axis the Company Analysis , i.e. the impact on the company's success (internal analysis) and the y-axis , which the Relevance to stakeholders of the company (external analysis).
The relevant topics of the environment in which the company moves are represented with their influence in the colored circles. The classification is based on the degree of impact on the company or the stakeholders – from low to high. Some companies only show the relevant part, such as BASF (high to very high) or Deutsche Telekom, which show a preliminary classification:
Example BASF (2019)
Example Deutsche Telekom (2020)
4.2 x-axis: the relevance for the company
On the x-axis, it is assessed which Pertinence has individual topics for the company. As a rule, the Financial performance adopted.
The other perspective - materiality as a strategic control instrument
As a strategic tool, however, the materiality matrix can also be used quite deliberately for other perspectives.
Depending on which area you want to focus on. The rating according to relevance from low to high could then be considered separately for:
Internal factors of the business model
- Supply Ability
- Pricing
- Scaling
- Capacity
Financial Performance Indicators
- Turnover
- Key earnings figures (EBIT, net income)
- Growth rates
- Other KPIs
Organizational Areas:
- Production
- Distribution
- Marketing
- Staff
- Finance
As an example: What impact does a supply chain interruption have on the company? Certainly a question that has a different weight for a production and trading company than for a service company.
4.2 Y-axis: relevance for stakeholders
Stakeholders are interest groups that have a specific interest due to their connection to the company. Above all, a Interest in information but also behaviour . Stakeholders can either Internal or external stakeholders be.
4.3 But how do you determine what is important for these stakeholders for the materiality analysis or materiality matrix?
Due to the large number of stakeholders, you inevitably have to resort to tools. While internal stakeholders may still be able to rely on employee surveys or resolutions of the Annual General Meeting, it is becoming increasingly difficult for external stakeholders. SAP has used external sources for this:
"These included: company reports from comparable companies, legal regulations and commitments in the software industry, online news on the technology and services sector, posts on Twitter, and questionnaires on non-financial topics from Socially Responsible Investors (SRIs) and customers."
Example Deutsche Bank 2020
Under the chapter "Exchange with Interest Groups", Deutsche Bank is dedicated to stakeholders and explains how it arrives at its assessment. In doing so, it also uses employee and customer surveys:
Basically, it can be said that there are no universally valid and fixed procedure gives. Nevertheless, the methodology of the evaluation should be comprehensible and also for subsequent years continuous be.
4.4 The relevant topics for the company
Let's start with the numbered circles. Which topics are relevant for a company and how do you determine them? The GRI provides a little help in this regard (GRI-101 1.3):
"An organization is confronted with a variety of different topics to report on. Relevant Topics that may deserve to be included in the report are those topics where to a reasonable extent it can be assumed that it is necessary for a presentation of the economic, environmental and social impacts of an organization or have an impact on the Exercising stakeholder decisions . In this context, a " Effect " the effect of an organization on the Economy, the environment and/or society (both positively and negatively). A topic can also be relevant on the basis of just one of these dimensions – and thus potentially material."
In our example of SAP (and also at BASF in 2019), these were 100 topics that were ultimately evaluated with the help of a big data analysis for risk assessment. (Provider: Datamaran) of discretion. In the end, the following 23 topics remained:
When you look at the materiality matrix, it quickly becomes clear that innovation, financial stability, and data security are a central component of SAP's business model. For example, a lack of data security would have a negative impact on stakeholder trust in the software and thus ultimately jeopardize SAP's business model.
Whereas biodiversity can be an important issue for the survival of humanity. However, this is of little importance for SAP's business model.
5. Why medium-sized companies should also create a materiality matrix.
The answer usually goes hand in hand with the obligation to prepare a sustainability report. Sometimes this comes through the back door, as you are asked by corporate customers to provide certain (sustainability) data. But even a voluntary constellation can make sense. Anyone who conducts a materiality analysis and draws up a materiality matrix consciously deals with internal and external risks and opportunities of their own corporate organization.
Looking inward
Risks come into focus that you might otherwise never have questioned.
Example:
Data security is taken for granted for a software provider, but major hacks show again and again how fragile the business model can be.
- Data of 533 million Facebook users published
- Microsoft hack: Many German companies could be affected
To the point that (customer) trust is consumed to such an extent that the entire business model implodes.
Employee Engagement is part of good manners, but is it also measured and if so, what are the criteria? Are you aware that employee engagement has a high business relevance?
The focus is also on the outside.
Anyone who questions the relevance of operational issues for their stakeholders consciously directs their gaze outwards and is thus able to react to grievances and a changing environment.
Compliance with occupational health and safety may be a matter of course in your own company, but what about the supplier from China or Bangladesh? What if a television report is supposed to associate possible grievances with one's own company as a buyer and customers then avoid the company? A look outside the company raises awareness of such dangers.
Recognizing topics before they become acute.
Becoming aware of relevant risks and opportunities for one's own business model is the first step in reacting to a changed environment. The major car manufacturers provide a good example here. While decarbonization and electromobility were ignored as social issues for a long time, they now find themselves at a disadvantage and have to make up ground to maintain their business model.
The same applies to airlines, which are confronted with a broad social discussion on the topic of "CO2 footprint" and with a "Fridays for future" movement.
Those who ignore these sustainability issues may find themselves in a similar situation at some point. The materiality matrix is a good first step in the analysis to identify topics before they become an acute danger.
Become a pioneer!
It is also worthwhile to focus on the stakeholders when identifying new business models or realigning the corporate brand. Companies that act sustainably are more attractive to all stakeholders. This can also be worthwhile, as numerous examples show. Above all, companies that quickly anticipate such changes and align their business model accordingly ( Starbucks , Tesla , BeyondMeat , etc.)
We are happy to find out what a cooperation can look like and how we can do it for you in a free and non-binding introductory meeting.
Duration: 30 min.
