Identifying Materiality in Corporate Sustainability

Identifying Materiality inCorporate Sustainability

From theoretical underpinningsto practical application

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• What is material?• The evolution of material disclosure• Materiality analysis in action: examples from the field• Discussion and questions

Today’s conversation

What is material?

“[T]opics and indicators that reflect the organization’s significant economic, environmental, and social impacts, or that would substantively influence the assessments and decisions of stakeholders.”

Global Reporting Initiative G3 Sustainability Reporting Guidelines.

“An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote”.

TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).

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“Material information” is defined by the Supreme Court as presenting a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available. Evaluating the materiality of sustainability issues involves looking beyond conventional measures of assets and liabilities to those embedded in aspects of social and environmental performance and stakeholder relationships, which may hold the key to future business success or failure.

Sustainability Accounting Standards Board

What is material?

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Significant impacts

Stakeholder interests

Economic Environmental Social Governance

Investors Customers Employees Communities SuppliersRegulators Academics NGOs Ecosystems

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Why does materiality matter to companies?

Companies focus on material issues because…

• They pose significant opportunity to build value: Success in addressing material issues can create significant value for brand and financial interest-holders.

• They pose significant risk to reputation and profitability: Failure to address material issues can increase costs, depress sales, erode brand value, and cause the loss of talent.

Business StrategyMateriality analysis leads to a more balanced perception of a company’s critical business issues.

ReportingA robust materiality analysis informs the balance between detail and breadth of coverage in reporting.

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• What is material?• The evolution of material disclosure• Materiality analysis in action: examples from the field• Discussion and questions

Today’s conversation

Material disclosure: The Global Reporting Initiative

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Materiality is a central tenet of reporting under the proposed G4 Sustainability Reporting Guidelines

…especially with regard to Disclosures on Management Approach and the selection of indicators on which a company will report.

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GRI Technical Protocol for Defining Report Content and Boundaries (G3.1 version)

Similar to the Financial Accounting Standards Board—except focused on environmental, social, and governance issues—the SASB will establish an understanding of material sustainability risks and opportunities facing companies, and create industry-based key performance indicators suitable for disclosure in standard filings such as the Form 10-K.

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Material disclosure: Sustainability Accounting Standards Board

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SASB’s materiality mapping process

http://www.sasb.org/materiality/determining-materiality/

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• What is material?• The evolution of material disclosure• Materiality analysis in action: examples from the field• Discussion and questions

Today’s conversation

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Framework LLC’s approach to materiality analysis

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CEMEX’s sustainability strategy focuses on seven priority areas

Materiality applied: linking strategy with reporting at CEMEX

http://www.cemex.com/InvestorCenter/files/2011/CX_SDR2011.pdf

BASF: Integrating materiality into business strategySeptember 2012BASF Corporation

Company Overview:BASF – The Chemical Company

The world’s leading chemical company

Serves all major industries

385 production facilities including six Verbund sites

World-class, innovative, high-value products

Intelligent, sustainable system solutions

2011 Sales: €73.5 Billion

Employees: 111,000+

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Sustainability will become even more important

SUPPLY DEMAND

1976 2010

Annual regenerative

capacity of the planet

Human beings now demand more from

the Earth than can be regenerated

Earth’s resources

Consumption of Earth’s resources

+

Source: Accenture.

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Sustainability in customer industries drives innovations in new growth fields

Health & Nutrition

Consumer GoodsConstructionTransportatio

n Electronics Energy & ResourcesAgriculture

Cus

tom

erin

dust

ries

Gro

wth

fie

lds*

Energymanagement

Wind energy

Rare earth metals recycling

Heat management Enzymes Plant

biotechnologyBatteries

Lightweight composites

Heat management

Functional crop care

Medical OrganicElectronics

Water solutions

Chemistry as enabler

Resources, Environment& Climate

Food & Nutrition Quality of life

BASF Strategy: We create chemistry

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Strategic sustainability issues

BASF assesses sustainability issues and their impact on an ongoing basis

In 2010, about 300 people, including customers, NGOs, investors, scientists, regulators and BASF employees, participated in interviews and surveys to assess the most important sustainability issues

Selected key issues 2011: – Energy and climate– Water– Product stewardship– Personnel development

For more information see www.basf.com/materiality

Energy &Climate

Product steward-

ship

Personneldevelop.

Water

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Health protectionHealth Performance Index comprises five criteria; Goal: score of at least 0.9 (maximal 1.0)

Reported cases of occupational disease Medical emergency planning First aid

Preventive medicine Health promotion

Overview of our goals

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Environment(by 2020)

Health(each year)

Safety and security(by 2020)

Water Drinking water for

production -50% Sustainable water

management in water stress areas 100 %

Occupational Safety Work-related

accidents -80%

Transportation safety Transportation

accidents -70%

Product safety “Safety check”

for more than 99% of our products

Energy and climate protection Greenhouse gases

(specific) -40% Energy efficiency +35 % Reduce (specific) greenhouse

gas Emissions from natural gas transport at Wingas -10%

Emissions to water Organic substances -80%

Emissions to air Air pollutants -70%

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Transport 4

Energy and climateHelping our customers shrink their carbon footprint

Without the use of BASF products: 1768With use of BASF products: 1438

CO2e emissions at customers [million metric tons of CO2e/year]:

Emissions along the entire value-adding chain

[million metric tons CO2e/year]:

CO2e emissions from BASF’s production(GHG Protocol Scope 1&2)

CO2e emissions along the value-adding chain (GHG Protocol Scope 3)

Emissions avoided:330 million metric tons

CO2e/year

BASF production

Suppliers

Use ofBASF end products

Disposal

Other sources

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65

50

30

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We help our customers to

reduce their “carbon footprint”.

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BASF is a strategic partner in the European Water Partnership and member of the WBCSD water leadership team

Majority of water (~90%) used by BASF is used for cooling

Global analysis of production sites in 2010 determined that one fifth of sites are located in regions with high water stress

These sites account for about 7% of BASF’s total water demand (but less than 1% of fresh water use)

WaterResponsible use of water resources is key priority

Red high water stress index (≥ 0.9)Blue low water stress index (≤ 0.1)Green BASF sitesWSI Data: Pfister et al., 2009

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Water Solutions

BASF Strategy: We create chemistry

Market size: €20 billion BASF sales potential: > €800 million

Business potential 2020

High-performance flocculants, desalinization and antifouling chemicals & polymers used in membranes (BASF & Ciba)

Acquired know-how on membrane technologies and module systems (inge watertechnologies)

Existing activities

Position BASF as the leading supplier of innovative chemical solutions worldwide

Forward integration into membrane technologies Leverage synergies to develop improved additives,

flocculants and polymers

Targets

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Leading edge tools include material sustainability issues

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CREATING SUSTAINABLE IMPACT

September 2012

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Bloomberg defines materiality for sustainability / financial as a function of time and visibility

TIME

MATERIALITY

LOW

HIGH

NEAR FAR

Financial

Financial / Sustainability

Sustainability

Long term, unknown effect

Harder to define, but very valuable

Well known, fully discounted

Bloomberg focuses

here

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We developed a framework to continually evaluate opportunities and determine investment attractiveness

Description

Specific Indicators

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Carbon emissions equivalents

Non-biodegradable solid waste

Toxic waste Water usage Deforestation Impact on plant life,

animal life land resources (e.g. strip mining)

Environmental Benefits

Measures impact on the environment from BLP’s business operations.

Measures financial impact of the change to the company.

Financial Benefits

Incremental operating expense (one time and recurring)

Incremental capital expenditures

Incremental FTE resources required

Operating expense savings

ROI (Return on Investment)

NPV (Net Present Value)

Payback period

Measures the extent to which the change fits with the overall BLP culture.

Company Fit

Fit with perception of BLP as a progressive company

Impact on employee satisfaction

Impact on employee interaction / shape culture (hard working, passionate, customer-centric, intuitive, etc.)

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The framework enabled Bloomberg identify and execute high value projects with multiple benefits

Aware87%

Neutral7%

Unaware5%

Released The Sustainability Edge in May, Bloomberg’s first public sustainability report. We achieved a Global Reporting Initiative B+ Application Level and a glowing review from the Corporate Register titled “Bloomberg: A paragon of what they preach”.

With Markets Magazine and Bloomberg Businessweek FSC certified, Bloomberg is the only multimedia company in the world with 100% of its portfolio to be sustainably produced.

By 2012, nearly 50% of our colleagues will work in certified LEED offices around the world

Ground broken on Solar Array at Skillman campus in 2011. Project will generate 2.8M kWh, approximately 58% of Building 100’s annual electricity consumption.

Notable Achievements

North America6

Latin America9

EMEA15

Asia5

Regional Projects: Distribution

BGREENAwareness

BGREEN/Other

InfoSys

Engineering

Marketing

Global Real Estate

Prof. Dev.

Markets Mag

Asset Mgmt

Facilities

40%

4%

4%

4%

4%

5%

5%

8%

25%

Project distribution by Department

Avoided equivalent of one year of

emissions from operations

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During this time, we’ve continued to learn and extend our efforts beyond operations

Collaborating with and supporting NGOs driving sustainability standard setting , disclosure and market development through voluntary, multi stakeholder efforts

Philanthropic Activity

▪ Grants- Provided grants in partnership with customers

to environmental organizations to improve environmental data for financial integration

▪ Sponsorship- Support for sustainability events and initiatives

that bring together finance, industry governments and non-profits to address environmental challenges

▪ Best of Bloomberg

- Identify and co-deliver targeted sustainability specific volunteer programs for employees in multiple locations to educate and engage them in areas important to Bloomberg

• Leveraging Bloomberg’s core strengths to develop products that accelerate solutions to environmental challenges and successful business opportunities for Bloomberg

Product Development

▪ ESG Data- created environmental, social and governance

data sets to provide better insight into how companies are managed ‘beyond financials’

▪ BNEF Acquisition- added leading clean energy and carbon market

research and information provider into Bloomberg suite of products

▪ Sustainability website

- Launched a sustainability channel on Bloomberg.com covering related issues to inform and hold the interest of the C-suite

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To continue, we need a framework to leverage existing guiding principles and objectives from multiple groups…

Operations

Responsible Forestry Management

Environmental Standards & Transparency

Green Building & Energy Efficiency

Electronics Efficiency& E-Waste

Supply Chain Risk

Product

New Customers

Risk Mgmt / Analytics

New Markets

Building the Brand

Enhanced Content

PhilanthropyEmployee Engagement Volunteer Projects

Brand/ Reputational Management

Community Engagement/Regional Presence

Education / Training Environmental

Impact reduction

Social Investment

Operating Cost reduction

Revenue Generation

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6 key tenets to drive success

A COORDINATED, UNIQUE AND AGGRESSIVE APPROACH TO ALIGN PHILANTHROPY, OPERATIONS AND PRODUCT TO

CREATE UNPRECEDENTED ‘SUSTAINABLE IMPACT’

1PHILANTHROPY

SYNDICATING SUSTAINABLE

SOLUTIONS TO OUR PARTNERS 3

PRODUCT

BLOOMBERG SUTAINABILITY

PRODUCT STRATEGY2OPERATIONS

BLOOMBERG BGREEN

SOLUTIONS

….to create a more robust sustainability integration effort that drives value throughout the organization

Anchor Initiative

Sustainability Accounting

Standards Board (SASB)

Department level Corporate

Carbon Assessment

Independent Sustainable

Finance Product Group

PEOPLE PLANET PROFIT

PartnerEngagement

Business Opportunities

Operational Excellence

Thought Leadership

Financial Integration

Market Development

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• What is material?• The evolution of material disclosure• Materiality analysis in action: examples from the field• Discussion and questions

Today’s conversation

• Who decides? What stakeholder audiences or internal criteria are most important to a materiality determination?

• A difference of opinion: How can we arrive at a consistent definition of materiality and thresholds?

• Process and outcomes: Is the publication of approaches to materiality analysis processes and lists of sector-based material issues (by SASB and GRI) helpful and sufficient?

• More data vs. more material data: a false choice?

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Discussion and questions

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Thank you!

Aleksandra Dobkowski-Joyadjoy@framework-llc.com

Curtis Ravenelcravenel@bloomberg.net

Charlene Wall Warrencharlene.wall@basf.com