Sunday, June 19, 2011

From good to great: reporting materiality

So many Sustainability Reports published in this period... it's like being in an ice-cream parlor... haha.... very hard to know what to choose. You want to read all of them but you clearly cannot otherwise you would explode (yep, that's what happens when I go into an ice-cream parlor.).

One thing that distinguishes a great sustainability report from a good sustainability report, for me, is the way the reporting company handles materiality. I think we have seen many reporters mature in the last couple of years. The better reports are tending to be less shopping-list style with long lists of activities and more issues-based. In the best cases, the issues that companies focus on are plotted on a materiality matrix.

The GRI defines materiality as:

Topics and indicators that: reflect the organization’s significant economic, environmental, and social impacts or that would substantively influence the assessments and decisions of stakeholders.

Materiality matrixes (matrices?) come in many shapes and sizes. Some are rather creative. Some are minimalistic. Some are interactive. Some are so vague that they make you wonder if they have anything to do with materiality. But simply posting your materiality matrix is not enough. Good reporters ensure that the content of their reports actually address the material issues in some depth, providing both reasonable context and strategic relevance. This is the first in a series of materiality posts which examines how companies represent materiality and report on key issues. 

This is the fourth report of this Belgian-based retailer, operating 2,800 stores in six countries with 138,000 people. This report is Application Level C of the GRI. Retailing has many sustainability issues and Delhaize has navigated these skillfully and present their materiality matrix in which healthy eating and food safety are the number one issues.

Safety is clear to all, but why would a supermarket select healthy eating as its most material issue both for its own business and for its stakeholders?

Delhaize's "healthy eating" goals include improving the nutritional quality of private brand products, improving health and wellness communications and applying Guideline Daily Amount labels to private brand products. Aha! Private label brands are a clear competitive arena for retailers and for the first time in Europe, private labels reached 40% in five countries with as much as 57% in Sweden in some categories. In the U.S., private label is said to account for 17% of retal grocery sales.  At the same time, private label brands are both more profitable for the retailer and significantly lower in price for the consumer. Surveys show that consumer perception of private label brands is strong. These days, retail brands are all about health and nutrition. There is no self-respecting food manufacturer around who is not reducing salt, sugar, artificial colorings, trans-fats and other undesirables and making loud noises about the fact that they are doing so. Much of the pressure to improve health parameters is coming from consumers who are concerned about the long-term health effect of manufactured foods as well as more and more regulation in this area, including product labeling regulation.

It makes great sense for a retailer such as Delhaize to focus on both improving the health qualities of private label products so as to compete more effectively in this arena and also support the ongoing education of consumers in the healthy options available to them and why. Delhaize claims that private label brands account for over 50% of their revenue in Europe and 26% of revenue in the U.S. and provide a consumer price benefit of up to 20%. This is surely a compelling business case for sustainability. In 2010, Delhaize reviewed formulations of almost 2,000 private label products.

Other materiality "musts" for Delhaize that appear in their Materiality Matrix are Employee (associate) development, health and wellbeing, social compliance and climate change.  These are all covered well in the narrative of Delhaize's report. Middle-ranking materiality issues for Delhaize include waste, packaging, organics, fair-trade, local sourcing and community, while low-ranking issues include biodiversity, water, animal welfare and more.

Delhaize's Corporate Responsibility Report addresses materiality well, in my view. There is a clear link between the high-focus issues and corporate strategy and stakeholder interests. The only thing lacking is a more comprehensive discussion of how the materiality prioritization was developed and what kind of feedback significantly prompted the selection of issues and their ranking by Delhaize. For example, Delhaize does not report on commercial relationships with food manufacturers and food pricing policies, post-purchase food waste prevention (via consumer education), overall contribution to food security and access to food beyond specific community outreach programs. Downstream impacts on packaging and packaging waste is discussed briefly but there is no explanation for the marginal reduction of only 2% of non-reusable carrier bags issue to customers which has barely changed since 2008. I wonder if and to what extent these issues arose in the stakeholder feedback and materiality methodology.

Overall, the Delhaize report gets the message through. The design is bold, clean and clear. Goals and progress against targets are presented in an orderly way and in general, reflect improving performance. The structure for managing CR is transparent and includes people with names and faces.   The online report is nicely navigable and includes case studies, stakeholder voices and the opportunity to provide feedback by email or engage in dialog via the Delhaize CSR blog, and a glossary. (Though some elements, such as the important "About this Report" section, including the GRI Index, are only in the PDF download and not accessible from the website, which means you cannot rely entirely on the online report).  The CEO message is delivered via video. As is now becoming popular practice with online reports, you can  "like" each page of the report and share your sentiments on the Delhaize Facebook page. No iPad app, yet, though!

The Delhaize report is partially (a small number of specific indicators)  externally and internally assured and includes a statement from Forum for the Future. Internally assured? Delhaize includes a statement from the Group's Internal Auditors alongside the statement from external auditors. While there is a clear conflict of interest regarding internal auditing, it does demonstrate a level of internal rigor in the reporting process and I like it. I don't recall having seen an internal audit statement before in CSR reports.

Anyway, rounding off this Materiality Post One, Delhaize seems to be moving in the right direction. Next time I am in Delhaize territory, I will be sure to visit! Hope they sell ice-cream......

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Author of CSR for HR: A necessary partnership for advancing responsible business practices  Contact me via  on Twitter or via my business website  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)

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