Identifying material topics

 Identifying material topics and similar sections are an important part of ESG reports. The way different companies write and present this section varies quite significantly. Here are examples from two listed companies, where “Business Integrity” (or “Honest Operations”) is listed as one of their material topics:

Company A:

Business Integrity ✚ (Positive Impact) Strengthening reputation Strong integrity governance enhances corporate reputation, attracts more investment and partnership opportunities, increases customer loyalty, and strengthens the company’s competitive advantage in the market.

Leadership & Governance – Business Ethics ▃ (Negative Impact) Triggering legal liability Inadequate integrity governance or the occurrence of ethical scandals may lead to legal liabilities, financial losses, reputational damage, and a weakened trust from stakeholders. (Later it references GRI 205 and GRI 206, and that’s it.)

Company B ESG Report:

Business Integrity Integrity is the foundation of a business. XX adheres to professional ethics, implements honest operations, and earns the trust of stakeholders.

Positive Impact: By establishing internal codes such as the Code of Ethical Conduct and Business Integrity Guidelines, the company provides all employees with a foundation for following business ethics, builds a positive corporate image, and enables sustainable business operations.

Negative Impact: A corrupt internal governance environment exposes the company to significant risks of violating regulations, resulting in major fines or forced suspension of operations. In accordance with RBA requirements, XX ensures and demonstrates the implementation and effectiveness of its business integrity practices through regular education and training, review of internal control systems, corruption identification processes, and other measures.

Short-term Goals: • Achieve 100% participation rate in anti-corruption training across all plants

Medium- to Long-term Goals: • Continuously monitor domestic and international regulatory trends and changes, regularly update business integrity training courses, and adjust internal control systems and corruption identification processes accordingly. • Participate in irregular third-party RBA compliance audits requested by clients • Conduct annual communication and training on anti-corruption policies and procedures • Perform annual corruption risk assessments at operational sites • Publicly announce internal and external whistleblowing email addresses on the company website for employees, customers, or suppliers to report concerns

(Later in Company B’s report, there is also a section on “2024 Actions and Results.”)

Question: Which of the two companies’ reports better complies with the requirements of GRI 3: Material Topics?

GRI 3 Material Topics Determination Process includes several steps: Step 1. Understand the organization’s context Step 2. Identify actual and potential impacts Step 3. Assess the significance of the impacts Step 4. Prioritize the most significant impacts for reporting

GRI 3-1 to 3-3 Disclosures:

Disclosure 3-1: Process to determine material topics Disclosure 3-2: List of material topics

Disclosure 3-3: Management of material topics For each material topic identified in Disclosure 3-2, the organization shall: a. describe the actual and potential, negative and positive impacts on the economy, environment, and people (including their human rights); b. report whether the organization’s activities or business relationships give rise to negative impacts and describe those activities or relationships; c. describe the policies or commitments related to the material topic; describe actions taken to manage the material topic and related impacts, including: i. actions to prevent or mitigate potential negative impacts; ii. actions to address actual negative impacts, including providing for or cooperating in remediation; iii. actions to manage actual and potential positive impacts; …………………

Many companies’ ESG reports do identify material topics and list them, but then provide little to no follow-up content. This is truly a pity because, in terms of material topics, they only complete half of the work.

GRI 3-3 requires that after determining material topics, organizations must describe related policies or commitments, as well as the actions taken to address the related impacts.

I recently came across Wistron’s material topics management page: https://esg.wistron.com/ch/stakeholders/MaterialIssues After identifying material topics, they disclose in detail the related policies, measures, or commitments in response. Wistron’s website provides quite comprehensive disclosure.

Companies should stop treating ESG merely as an expense. In response to global warming, implementing ESG is now an inevitable trend. Companies should incorporate ESG-related considerations into their decision-making processes—whether it’s reducing carbon emissions in manufacturing processes, developing low-carbon design products, improving waste recycling, etc. Doing ESG well is actually a value-adding option for the business.

However, the first step is to take ESG report writing seriously: identify the impacts the company may face as material topics, and then develop corresponding policies, measures, or commitments to address those impacts.