Defining What to Report
Companies can report on a vast range of sustainability topics (use of water, energy, and land; waste; greenhouse gas emissions, and so on). Even within the realm of water, numerous issues affect, and are affected by, companies to varying degrees, depending on the geographic location, industry sector, and other circumstances. To be effective in its reporting, a company must determine which water-related topics (e.g., water scarcity, poor ambient water quality, inadequate access to drinking water or sanitation, flooding) are most important to its stakeholders, which topics have (or may have) significant impacts on people and ecosystems, and which have the potential to generate risks or opportunities for the business.
This section provides guidance on how a company can define which water-related topics and information it should disclose, as well as how it can effectively communicate this process and its outcomes.
Relevance and Materiality: What are They?
In sustainability reporting, materiality is commonly thought of as a threshold at which certain sustainability topics become relevant enough for a company to report on. The Global Reporting Initiative (GRI) defines material topics as those that:
- Reflect the company’s significant economic, environmental and social impacts or
- Substantively influence the assessments and decisions of stakeholders (such as employees, investors, suppliers, local communities, governments, investors, or consumers)
Materiality and relevance are often used interchangeably. However, they are two distinct terms whose subtle differences are critical to companies seeking to define which content to report:
- Relevant topics are those that may reasonably be considered important for reflecting the company’s economic, environmental and social impacts, or influencing the decisions of stakeholders. They therefore potentially, but not necessarily, merit disclosure.
- Material topics are the subset of relevant topics that are ultimately determined to be sufficiently significant to report on.
Assessing Relevance and Materiality for Water-Related Topics
The process of determining a company’s material water-related topics, and thereby defining which water-related information should be reported, has three key steps:
- Identifying a list of relevant water-related topics based on the company’s risks, opportunities, and impacts on people and ecosystems, and in what locations in the company and in the value chain these topics are relevant
- Prioritizing the relevant water-related topics based on an assessment of the significance of the risks, opportunities, and impacts they pose and the views expressed by stakeholders
- Validating the outcomes of the materiality assessment
STEP 1: Identifying Relevant Water-Related Topics
1.1 Determining reporting boundaries for water
As a first step, a company determines the range of entities to be included in the relevance and materiality assessment.
1.2 Assessing whether water is a relevant sustainability topic
Next, companies assess whether water is generally a relevant sustainability topic. The table below offers an overview of industry sectors typically exposed to significant water-related business risks due to the nature of their water use.
1.3 Identifying specific water-related topics to report
At this level of assessment, a company considers at least the following broad considerations:
- Its impacts on water resources and access to WASH services
- Business risks stemming from basin conditions (e.g., water scarcity, pollution, regulatory uncertainty, etc.)
- Opportunities to contribute to sustainable water management
- Opportunities to adapt to ensuing changes in basin conditions (e.g., climate change or land use) and planned changes in policies and regulatory frameworks
STEP 2: Prioritizing Relevant Water-Related Topics
In Step 2, a company prioritizes the water-related topics identified in Step 1 to develop a list of material topics to be reported. Fundamental to this step is assessing the significance of the risks, opportunities, and impacts associated with the topics identified in Step 1. Next, the company must determine the influence that these topics may have on stakeholders’ assessments and decisions.
When assessing the significance of the risks, opportunities, and impacts associated with a specific water-related topic to the business itself and to sustainable development generally, a company asks the following questions:
- What is the likelihood and severity of the impacts?
- Does this topic compromise the company’s license to operate in a specific location?
- Might this trend or condition eventually disrupt the company’s operations or its value chain?
- Is there an opportunity to gain competitive advantage through action in this area?
- Might action in this area further assure investors and markets that business operations will continue to be profitable?
- Does this topic compromise the company’s ability to uphold its own values and ethics?
After completing this twofold analysis, a company can then determine which specific water-related topics are material. The matrix below may be useful to visually represent the significance of each topic.
Visual Example of Prioritization of Topics
STEP 3: Validating the Outcomes of the Materiality Assessment
In the third step, the company ensures that the final selection of material water-related topics provides a reasonable and balanced representation of the company’s significant water-related risks, opportunities, and impacts. To do so, the company assesses the proposed list of material water-related topics against:
- Scope—Are all significant water-related risks, opportunities, and impacts covered?
- Boundary—Has the company considered significant risks, opportunities, and impacts in entities both within the company and throughout its value chain?
- Time—Does the selected information cover the entire reporting period?
STEP 4: Review
As the company is preparing for its next reporting and management cycle, it reviews its materiality assessment in order to capture ongoing changes in global water challenges, specific basin conditions, stakeholder expectations and priorities, and how and where the company operates.
Communicating the Process for Defining What to Report
Providing a description of the materiality assessment process itself allows readers to better understand and evaluate whether the company is managing and reporting the most important water-related topics. Reporting water-related materiality assessments comprises three main components:
- How important water is to the company (relative to other sustainability topics)
- How water-related topics have been prioritized
- How stakeholder engagement informed the materiality assessment process