Deciding the material topics for a company’s sustainability report is a crucial step. Not only do these topics become the main focus of the sustainability report, they become the main focus of the company’s sustainability goals. Therefore, picking the “wrong” material topics could cause the company to choose inferior sustainability goals.
So, what makes a material topic “right”? At its core, material topics should reflect the largest impacts the company is having, both positive and negative.
Material topics should be areas where the company:
1. is currently creating a significant positive OR negative external impact.
2. has the opportunity to create a significant positive impact or avoid negative impact.
Notice that I wrote that the impacts should be significant. There is no standard way of defining what is significant for all companies – it is up to the individual to decide what significant impact means for their company. It will largely depend on the type of business and industry involved. As the sustainability strategy matures and becomes data driven it will become easier to define.
There is an additional consideration for companies that are:
- Just beginning a sustainability strategy (first 1-3 years)
- Business with low supply chain leverage
- Business with low budget for sustainability
If 2 out of 3 of the above bullets are true, the company would likely not have the influence to change the behaviors of their supply chain partners. Therefore, companies like this should also choose a main topics that are:
In this example, the company is responsible for purchasing the raw materials that make up the product as well as the supplier they come from. The raw material is processed at a 3rd party manufacturing facility. The finished product is then sent to the internally owned warehouse where it is stored, packaged, and shipped to the end customer. Almost the entire process is owned internally so there is a lot of decision making power available. See the additional tips below for more clarification.
The next step is to go through each link and contemplate the positive and negative impacts going on at each step, and ideas of how they could be improved. Continuing with the example above, let’s think about link 1: Raw Material Purchasing. This link is owned internally, so there are decision-making opportunities available for different suppliers or materials. Start by asking and answering questions about this link to gain a better understanding.
Asking questions like these below will help point to areas that are in need of improvement:
- Where are the suppliers located?
- How far do materials get shipped?
- Is there a more efficient order quantity?
- What type of transportation is used?
- What are the carbon emissions created during transportation?
- What are the raw materials made of?
- Are there more sustainable materials available?
- What happens to these materials at the end of life?
- Do the suppliers have sustainability policies or certifications?
- What type of labor practices do the raw material suppliers follow?
These questions are just a starting point. The important part is to critically think about each link of the supply chain in terms of the impact it is having. It is easier to choose material topics and impactful goals when there is a greater understanding of what is happening at each link. This exercise can be done for every link in the supply chain. Material topics can be debated and finalized after going through them all.
As mentioned earlier, it can be advantageous for a company to focus on material topics that are under their control. In the example, the 3rd party manufacturer is the only link that is externally owned. Following the rule, the company wouldn’t focus on changes at the manufacturer as a main topic. But let me be more clear. The point of the rule is to avoid wasting time trying to get a 3rd party to change in order to complete goals. This does not mean that the supply chain exercise is skipped for that step. It is still important to critically think about that area, and understand if it is contributing to negative impacts. If there is a link in the supply chain that is holding back sustainability goals, find a new partner for that link or make a revenue goal to afford an upgrade.
Supply Chain Analysis is a great tool to help companies choose impactful material topics for their sustainability reports and overall strategy. Contact me if you’re ready to get started!