Material, but Not Always Strategic: Why the Difference Matters

Key Points

• Against a backdrop of changing geopolitical and trade dynamics, growing scrutiny of sustainability initiatives, and a shifting regulatory environment, developing sustainability strategies has become increasingly complex.
• Material issues can provide a starting point for identifying a more focused list of strategic issues, where your company can have the greatest impact through its core business activities.
• BSR shares key ways to identify, address, and manage strategic and material issues through a double materiality assessment, considering potential business value opportunities and future implications of these issues.

The context for sustainability strategies has become increasingly complex as businesses face changing geopolitical and trade dynamics, growing scrutiny of sustainability initiatives, and a shifting regulatory environment. Amidst these developments, sustainability strategies require vision, clear focus, strategic foresight, and strong alignment with business value drivers and the company's overall strategy, while delivering societal value and impact. If these factors are in place, a clear and simple narrative, sharing how the company is addressing societal impact alongside business value, can easily follow and is essential to give meaning to employees as well as external actors, including customers, investors, suppliers, communities, and affected stakeholders.  

Make Materiality More Strategically Useful  

A materiality assessment has historically been the most common entry point for sustainability strategies. Materiality’s origin lies primarily in its role as an exercise to inform disclosure. However, these assessments remain strategically valuable as they help define the sustainability topics, risks, and opportunities impacting the company, and the company's most significant impacts on society and environment.  

Since conducting a double materiality assessment (DMA) is resource intensive, it is essential that companies leverage the investment in the exercise to inform strategic decision-making. This includes asking your internal and external stakeholders additional questions on various topics, including what they feel is strategic for the business priorities; how business value drivers, such as revenue growth and operational efficiency, link to or rely on impacts on people and the environment; and how they feel issues may evolve over time. A good DMA aligns with a company’s existing enterprise risk management (ERM) process, considers other assessments that have already been conducted, and reflects the company’s business strategy and governance processes. Opportunities and positive impacts identified through the DMA should be connected to the core business value drivers. They should also feed into strategy setting or refinement, including goals, targets, programs related to strategic focus areas (such as initiatives on climate or inclusive business), and accountability on those topics by leadership.  

If conducted comprehensively, a DMA can serve as a strong foundation for shaping a focused and credible sustainability strategy aligned with stakeholder expectations and long-term business goals. A materiality assessment should not be perceived as a "compliance-only" exercise; rather, its results should be complemented with additional insights, such as key strategic business differentiators compared to other companies, to move from "compliance requirement" to "core strategy informant."  

Distinguish Strategic Issues from Material Issues  

When setting sustainability strategies, companies often fall into the trap of aggregating all material issues into the broad bucket of “ESG” and calling it a strategy. More tactical insight is needed to refine the list of material issues to a list of strategic issues. This refinement process should draw from the overall sustainability vision, the business strategy, and strategic foresight of the macro context (which includes global trends, economic shifts, regulatory developments, climate change, geopolitical dynamics, social movements, and technological innovation). 

For example, while any robust financial materiality assessment will ground itself in core business drivers, a topic’s current or future performance does not determine whether the topic is material. Gaining a greater understanding of the direct links between business strategy and performance with material topics is crucial to creating a sustainability strategy that is embedded in and supportive of business strategy. Here, insights such as plans on future product or market growth, or innovation priorities, may be helpful. Furthermore, customer insights and employee surveys show us that some material issues, like product safety and workplace safety, may resonate more with customers and employees since they align with business values like integrity, quality, safety, ethics, longevity, and accessibility. 

Another key consideration is the impact of macro conditions, like geopolitical volatility, market shifts, and plausible future developments. These may suddenly shift business strategy or sustainability impacts, risks, and opportunities. Strategic foresight can be used to better understand current volatility and identify potentially unforeseen risks or opportunities, helping to root strategy in longer-term transformations, while navigating and adapting to short-term shocks.

As companies have different approaches of setting a threshold for materiality (aligned with a company’s enterprise risk framework or not), this should also be considered when reviewing the sustainability topics in the context of strategy. Together, with a clear understanding of impacts, all these components should steer a company toward its unique position and clear narrative on business and societal value.    

This process of designing or refining the sustainability strategy could also uncover topics that are material but not necessarily strategic. For example, water pollution may be a material topic for a company with water use and discharge in its operations or value chain due to its clear environmental impact and potential financial and reputational risk, requiring reporting under the CSRD. However, this does not mean that it is a strategic topic or driver of long-term value and differentiation for this company, and it could be addressed through robust environmental management systems rather than as a strategic priority.  

On the other hand, sustainable product innovation (such as co-branded eco-friendly packaging) may be strategic for market positioning and future consumer appeal, but if these initiatives do not present significant risks, impacts, or financial implications, they may not be classified as material in a DMA—meaning they are managed internally, but are not subject to mandatory reporting.  

Ensure That Material Issues Are Still Addressed and Managed 

Leaving a material topic outside of your business or sustainability strategy does not necessarily mean it will be neglected. There are several ways that issues can continue to be addressed and managed without declaring them as the most strategic issues. For example, the issue of pollution can be addressed through management agendas, policies, and procedures. Joining or initiating a collaboration among peers is another way to show commitment and enable progress, especially for more nascent or systemic issues such as plastic pollution. It is helpful to distinguish between issues that are strategic, which require management, and issues that require reporting, and then determine the required actors and audiences for each of these issues.   

At a time when sustainability and business strategy are becoming increasingly intertwined, companies must go beyond compliance and use materiality as a lens for strategic clarity. By distinguishing between what is material and what is truly strategic, businesses can focus their efforts where they matter most, increasing impact, resilience, and long-term value.  

Interested in translating your company’s materiality insights into clear, credible strategies that meet stakeholder expectations? Reach out to BSR's Business Transformation team for more information on building business resilience and collaborating with peers to create systemic change.

This article was originally published at the BSR website "Sustainability Insights" and is written by Nine Weijenborg, Associate Director, transformation and Financial Sevices and Margot Brent, Associate Director, Transformation at BSR.