We applaud the work companies and NGOs have done to develop the idea of a materiality matrix. It is an important contribution to helping companies develop sustainable strategies and work with their stakeholders to develop a sustainable society. However, we believe it is time to take the logical next step of improving the rigor by which this matrix is created and used. Evidence of the need for this is our analysis of the 91 matrices discussed above. We propose that it is time to shift from the "Materiality Matrix" to the "Sustainable Value Matrix (SVM)."

"Sustainable Value Matrix" is more than a mere change in terminology. Our rationale for why a "Sustainable Value Matrix" is a more appropriate term than "Materiality Matrix" is grounded in the discussion of the previous chapter, particularly the idea that materiality only has meaning from the perspective of the entity that determines it. A firm cannot define the materiality of others— be they companies or other stakeholders. Thus, only one dimension, conventionally the X-axis, is "about" materiality, and we call this axis "Materiality to the Firm."

A sustainable strategy is one which enables a company to create value for its shareholders over the long term while contributing to a sustainable society. This involves recognizing what is material to investors from the company's perspective and, in its view, what is significant to society. Those stakeholders that are not significant and the issues they represent are absent from the company's "Statement of Significant Audiences and Materiality." The SVM and its supporting disclosures can be a visual representation of this Statement.

We call the stakeholder dimension, typically the Y-axis, "Society's Issue Significance." It is not "materiality to society." While specific stakeholders have their own view of materiality, society as a whole does not. To recall the "cardinality" concept from the previous chapter: between the firm and society, there exists a "one-to-many" relationship, not the one-to-one entity relationship required for materiality. Many is not an entity. The Y-axis is the firm's representation of the aggregated views of its chosen stakeholders as reified in the concept of "society." Through a process it designs, the firm determines the relevant (and irrelevant) stakeholders,45 how it will engage with them to get their views, other methodologies for gathering data, and the algorithm for aggregating these data into one measure on this dimension for this issue. In truth, the most accurate label for the Y-axis is "The Firm's Perception of the Significance of Its Chosen Stakeholders' Interests Aggregated as 'Society.'"

However, we choose to shorten this mouthful to "Society's Issue Significance." This view is influenced by the firm's own perception of its role in society because this determines the stakeholders it chooses to engage with and the weightings it gives in aggregating their views. Thus it is not and should not be construed as an "objective" or "accurate" view of the relative importance society attaches to issues.46 It is about how important the company thinks issues are to society from its perspective, as grounded in the board's "Statement of Significant Audiences and Materiality," which identifies the relevant stakeholders and their relative importance.47

Highlighting the binary nature of materiality, the SVM is a literal matrix with defined cells, not necessarily of equal size, and thresholds (Figure 6.2).

The Sustainable Value Matrix

FIGURE 6.2 The Sustainable Value Matrix

(The inset "A Hypothetical SVM for a Pharmaceutical Company" provides a hypothetical example of the SVM for a pharmaceutical company.) Each cell has reporting, stakeholder engagement, resource commitment, and innovation attributes. The company has the responsibility and, consequently, must have the courage to be clear about which issues it considers to rise above the materiality and significance thresholds and which do not. The firm, as represented by its board, must first decide the "Firm Issue Materiality Threshold," which identifies the threshold for material issues, and then the "Society's Issue Significance Boundary," which identifies the boundary for stakeholder issue significance. Where to place each line is completely at the firm's discretion. It simply must do so and be clear about the methodology it uses to make this decision, which starts with the "Statement of Significant Audiences and Materiality."

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