The concept of materiality relates to the idea that sustainability-related disclosures should be focused on those topics that are most significant and relevant to an entity. For example, biodiversity is likely to be material for a company in the agriculture industry. Still, it may not be material for an IT services company that is likely to prioritize other sustainability matters such as talent acquisition and retention or gender diversity.
While it supports the tailoring of management and reporting of sustainability matters to the specificities of each entity, B Lab Europe’s position is that certain topics are always relevant to stakeholders (such as human rights and climate change) and that some disclosures should be mandatory. We have drawn the conclusion that this is not a disproportionate burden on companies – including SMEs – directly from our experience.
Based on our decade of assessing sustainability performance through a standardized questionnaire, we see addressing certain always-material topics as a foundation for the effective implementation of corporate sustainability strategies.
But how may a company identify what sustainability topics are material? Materiality considers the severity of the impact, which in turn is based on: the scale, the scope, and the irremediable character of the impact. But no thresholds are imposed, leaving the company a wide margin of interpretation. Certain sustainability topics should be considered to be always material because their importance to the people and the planet transcend the specific circumstances of individual companies. Issues such as climate change or any impact of investment decisions or advice that results in a negative effect on human rights and biodiversity have wide-ranging consequences on different stakeholders across industries. These topics hold significance regardless of a company’s size, sector, or geographic location.
In particular, principal adverse impacts* are of such irremediable character that they should qualify as severe, irrespective of scale and scope. Examples of these “principal adverse impacts” are: activities negatively affecting biodiversity-sensitive areas, the number of identified cases of severe human rights issues and incidents, or incidents of discrimination.
Companies that want to certify as B Corps need to answer a series of questions in the B Impact Assessment (BIA). While most of the BIA captures a company’s positive impact, the negative impacts are identified through the Disclosure Questionnaire, background checks, and the public complaints process. A company may be required to transparently disclose practices on their public B Corp profile, implement management practices to mitigate the risk, or in some cases, be ineligible for certification. Find out more about how we mitigate risks here.
This is why B Lab Europe supports the idea that by making certain disclosure requirements mandatory, companies are compelled to address these fundamental sustainability concerns, ensuring that critical issues are not overlooked or downplayed due to subjective assessments.
Recognizing these topics’ inherent materiality promotes transparency, responsible practices, and ultimately contributes to a more sustainable and equitable global business landscape.
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