As part of its approach to holistic management, Novartis has designed a comprehensive “Materiality Assessment (MA) Toolkit” to identify topics and capture insights that are relevant for strategy-setting, steering and reporting.
Novartis now makes this toolkit available to all interested companies as an open-source project to support inclusive and holistic management worldwide.
In today’s complex business and social environment, which is embedded in an increasingly disrupted ecosystem, companies need an inclusive approach to measuring and managing their performance.
The changing expectations of a company’s main stakeholders, including its investors, require a more holistic approach to management. This new approach needs to have a broader focus that considers not only financial performance but also the social and environmental impacts of business activities.
Stakeholder expectations and opinions can serve as a good proxy and starting point for understanding a company’s material impacts.
They can help a company sync business actions and responses with stakeholder needs. It is therefore key for a company to engage with its stakeholders to decide which topics to focus on. These are not only economic topics, but also social and environmental topics – which have been neglected all too often in the past.
Thus, the financial aspects should be supplemented with social and environmental topics which are “material” to the company and its stakeholders.
The concept of “materiality” recognizes that some information is more important to shareholders than others. In the past, the most important information predominantly consisted of financial figures. However, using a holistic materiality assessment, a company can now also identify all the social, environmental and economic topics that have a substantial likelihood of influencing the judgment and decisions of shareholders and other key stakeholder groups and that also have a significant impact on a company’s performance and business.
To understand how internal and external stakeholders perceive the different external impacts of its business activities, meaning the economic, social and environmental impacts, Novartis conducted its first global corporate responsibility materiality assessment in 2006, another in 2013, and its latest in 2017.
A standardized Materiality Assessment Toolkit ensures that country assessments and the resulting analysis of results conform to the same standards across Novartis. The priority for Novartis was to create a tool that provides insights into the external impact of material topics which can be considered when reviewing future strategies at Novartis to further align with societal expectations, business needs and new market developments.
These are the objectives of the Novartis materiality assessment:
If they wish to be credible, effective and at the same time strengthen performance, companies should only focus on those topics that really matter to their key internal and external stakeholders. A core decision for conducting an assessment is therefore to select the relevant stakeholders who will then determine the material topics as a sub-set of all possible topics a company could focus on. Besides that, it is also relevant to understand whether the topics considered impact the company, or whether the company impacts certain topics. The Novartis assessment methodology is currently designed to capture the latter.
Companies should ask two central questions: How do we define our ecosystem? What is our impact on this ecosystem? There is no one-fits-all-solution or template for qualitative materiality assessments. Different companies in different sectors and countries have different impacts on their specific environments.
As part of its approach to holistic management, Novartis has developed a comprehensive “Materiality Assessment (MA) Toolkit” to identify material topics and capture insights that are relevant for strategy-setting, steering and reporting.
Every four years, Novartis conducts a complete materiality assessment, engaging with key internal and external stakeholders by following all the steps of the Toolkit. This four-year cycle allows the company to follow up on the assessment results and ensures the assessment uncovers new insights by allowing sufficient time for circumstances to change and become manifest.
Novartis wants to make this toolkit available to all interested companies as an open-source project to support inclusive and holistic management worldwide. The tools are not industry-specific and may therefore be used by any kind of venture or institution including private and public businesses, and non-profit organizations.
To support other companies in conducting similar materiality assessments and to foster the exchange of ideas and experiences, Novartis is thus sharing its toolkit.
The best way to find out which economic, social and environmental topics are material to a specific company is to address the various internal and external stakeholder groups directly. To cover large groups of stakeholders, representative samples of these groups are a reliable and efficient way to conduct surveys and interviews. The Novartis MA toolkit provides a detailed explanation of how to plan and conduct such surveys, how to draw the right conclusions from the key results and share the findings with management.
• Define objectives of assessment
• Compile a list of possible topics
• Win support of top management
Ask key internal and external stakeholders to assess the list of topics:
• Quantitative research: Conduct internal and external online surveys
• Qualitative research: Conduct internal and external interviews
• Evaluate surveys statistically
• Encode interviews
• Prepare correlation analysis
• Prepare scenario analysis
• Discuss results with internal and external experts and stakeholders
• Use materiality assessment as management tool
• Prepare report
• Prepare communication, in particular to stakeholders who participated in the assessment
The Materiality Assessment results can be used as a management tool to prioritize actions and decisions based on a company’s impacts. This understanding helps the company to align its strategy, operations and reporting with the expectations of society and its business requirements.
The results of a materiality assessment can also be leveraged to structure non-financial reports, as the results demonstrate the importance of the topics analyzed to a company’s shareholders and other key stakeholders – the recipients of these reports. Furthermore, the results indicate to the company the topics for which it should establish performance indicators and objectives in order to manage them more proactively and to which compensation of managers should be tied. Therefore, in the context of the assessment, it is vital to reevaluate not just the company’s reporting process, but also how it manages its economic, social and environmental impacts.
Although there are clear international standards for financial reporting and management, the frameworks for measuring, managing and reporting the impact of social and environmental topics are diverse, but not internationally standardized. In the absence of practical standards, companies like Novartis have voluntarily established methods to begin managing these topics more proactively. As a founding member of the Value Balancing Alliance, Novartis is also a forerunner in impact measurement and valuation.
The Reporting Frameworks of the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the UN Global Compact (UNGC) are widely used internationally and are an initial and encouraging step in the right direction, but currently lack standardization and have no teeth in changing management practices.
This aspect is also outlined by Jean Rogers and George Serafeim, pioneers in the field of materiality and corporate sustainability: “The lack of a standard materiality framework made comparing firm performance on many of the issues deemed material by individual firms challenging for investors and other stakeholders.” (“Pathways to Materiality”, Harvard Business School Working Paper 20-056, 2019)
Novartis is in the process of developing methods to measure and evaluate its economic, social and environmental impacts. The Novartis materiality assessment serves as a starting point to identify indicators of relevant (intended and unintended) impacts. This allows comparisons of the company’s positive and negative impacts from its business activities on society and the environment.
„Materiality as a concept was clicked on in the financial world and dragged across into the sustainability strategy and reporting field. It has been immensely helpful. Novartis is being generous in opening up its work – hopefully an irresistible offer for others in the field.“
John Elkington, Founder & Chief Pollinator, Volans Ventures
“A rigorous materiality assessment is something every company should do. Over the past 15 years, Novartis has developed a deep expertise in doing this. I thank them for making this expertise available to all. It is a major contribution for enabling companies to develop sustainable strategies for their own benefit and the benefit of their shareholders and other stakeholders.”
Robert G. Eccles, Visiting Professor of Management Practice, Said Business School, Oxford University
You may download the Novartis “Materiality Assessment (MA) Toolkit” to conduct similar materiality assessments in your own company or institution. We welcome any feedback from your side about your experiences using this toolkit. We are also open to any suggestions and comments to improve the process and welcome an exchange of ideas.
The development of standardized key figures featuring a company’s social and environmental performance should be a global priority for the business community. It is a prerequisite for benchmarking and reporting, which drives capital allocation.
We welcome an exchange of ideas and experiences to foster this development.
If you have any questions or feedback, please do not hesitate to reach out to us:
Senior Manager Corporate Responsibility, Strategic Initiatives, Novartis
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