Materiality in the Time of COVID-19

Even during non-pandemic periods, a company’s material issues - as reported by stakeholders - frequently change over time.  This concept of “dynamic materiality” has been explored extensively.  So you can imagine how events of the past two years have shaken up what is now viewed as material.  Recently, we have worked with a number of clients who are updating their ESG materiality assessments and, in our view, there couldn’t be a better time for it.  

The COVID-19 pandemic, social justice movements such as Black Lives Matter, more frequent and intense storms connected to climate change, and major cybersecurity breaches are all causing stakeholders, especially investors, to redefine and reprioritize issues that may ultimately have an impact on the performance of various companies.  How have these events shifted perspectives?  We’ve captured some lessons learned from our work, including a Q&A with one of our clients, below. 

A FEW RECENT OBSERVATIONS... 

• COVID-19 has prompted a re-evaluation of some common material topics. Take the example of Employee Health and Safety. Traditionally associated with physical health and safety, stakeholders and employers are now thinking about health more holistically.  Many workers have experienced anxiety and depression, grappled with personal losses and faced the challenges of working from home, all of which create new demands for employers.   

• The unprecedented number and severity of destructive floods, wildfires and other climate change-related events in recent years now factors more heavily into the planning of those dealing directly with supply chain and facility logistics.  This is reflected in increasing pressure from investors to manage and disclose climate risks as well as pressure from customers and suppliers to prioritize reducing environmental impacts.

• The wave of social justice awareness that swept across the globe in 2020-21 prompted a rethinking of business as usual. In the wake of this reckoning, we observed stakeholders developing a broader interpretation of the topic of Diversity, Equity and Inclusion (DEI). Whereas DEI used to refer primarily to the composition of the employee base, the C-Suite and sometimes the board of directors, now stakeholders are concerned about which products are being developed, for which populations, and whether they will be affordable to those who need them – all through the lens of DEI.

ONE CLIENT’S PERSPECTIVE

Millicom, a global telecommunications company and a long-time client of SustainabilityNext’s, was two weeks away from conducting a Materiality Assessment when the COVID-19 lockdown struck in 2020. The Corporate Responsibility team quickly realized that given the turmoil, pursuing the assessment as if the situation were status quo would be useless. So they pivoted.  We sat down with Marina Williams, Sustainability Reporting Specialist at Millicom, to capture her thoughts about the process and results.

Q: When and why did you decide to conduct a “COVID” Materiality Assessment?

A: We typically conduct Materiality Assessments every two years. When COVID hit at the beginning of our 2020 assessment, we decided to delay the assessment as long as we could without compromising the next annual report. So we moved the start date from April to August and delivered the results in November. 

Q: What did you ask your stakeholders about the impacts of COVID?

A: Internally, we asked how COVID impacted the business function, what measures were taken, and how they expected this to unfold in the short, middle, long term. We also asked what we had done well and what we found we were not prepared for. For external stakeholders, we asked whether and how their views on corporate responsibility had changed because of COVID.

Q: What did you learn from their responses?

A: In general, we were very nimble in response to COVID, and that had a lot to do with our corporate responsibility strategy. That framework has been a compass for us, with enough structure to keep us organized but also be able to adapt overnight. 

From most investors, we heard that corporate responsibility was more important than ever. 

We also learned that most of our customers and even some internal stakeholders had very little knowledge of our corporate responsibility strategy, so we are working with our marketing teams to make that work more visible. 

Q: When topics shifted in priority or new topics were shown to be material as a result of COVID, how did the company act on this information?

A: The digital divide came into sharper focus during the pandemic as internet access became essential for everyone.  Many Small to Medium Enterprises in our Latin American markets were badly hit and our B2B team had to work quickly to figure out how to help customers adapt and stay afloat, for example by providing new training.

The health and safety of our workers also shot up in importance, both because of the threats of exposure they faced as essential workers and because so many lost loved ones and colleagues. We had to change the way we work, which meant sometimes working less or working from home. 

Our investors and customers specifically cited the importance of climate change mitigation, both as a stand-alone issue and how it compounds other crises. If anyone had questioned whether to put off climate change targets, our updated materiality assessment showed that wasn’t an option.

Having a clear business purpose also ranked very high with stakeholders. It was very grounding as we scrambled to respond to a changing world. Everything stems from how and why we build our digital highways.

Q: What advice would you share with others who are considering reassessing materiality due to COVID?  

A: When you get feedback from stakeholders, it’s important data but you still need to use your team’s professional judgement to finalize the assessment. 

If you do MAs too frequently or always go back to the same people, you will observe interview fatigue. Find ways to keep it fresh and engaging. For example, we use our regular conversations with investors to ask their opinions informally on materiality questions. 

Use your existing tools. Our marketing and customer experience teams helped us get 4,000 customer responses to our questionnaire. Not only did we get robust data, but the process improved the quality of the survey and helped create internal relationships. This impressed our investors. 

Millicom’s experience is a good illustration of how a company’s materiality profile can shift, especially during times of global disruption (see Millicom’s COVID materiality documentation here). If your company has not previously performed a Materiality Assessment, or if your most recent one predates the pandemic, now is a good time to address it. SustainabilityNext’s proven approach might be just the right next step on your sustainability journey.