Telefonica is considered as one of the largest telecommunication companies in the world and has a headquarters in Spain. Annually, the company issues its corporate sustainability report. In 2011, the company was one of the five companies, out of 97 companies in Spain, to submit a sustainability report. In that same year, the company's annual report incorporated a "materiality matrix,". This case study "Developing the Materiality Matrix at Telefonica" looks into what a materiality matrix is and its purpose and how companies can use it to their advantage.
Robert G. Eccles, George Serafeim, Asun Cano Escoriaza
Harvard Business Review (413088-PDF-ENG)
December 17, 2012
Case questions answered:
- Explain as clearly as possible the process of building a materiality matrix, as is seen in the example of Telefónica. (Imagine you have to write a manual for your colleague at work).
- What is the purpose of the materiality matrix (at Telefónica)? Is it intended to be for external reporting alone?
- Do you think the scheme to determine the materiality of each issue is “robust”? (How easy/difficult would it be to find a topic in a different area of the matrix? i.e., carefully try to understand the method(s) behind placing topics on the axes.)
- If you look at industry peers’ reports, does the materiality matrix of Telefónica agree with those of its main competitors? If not, do you have potential explanations?
- To what extent does the materiality matrix of Telefónica agree with the Materiality Map of SASB, both conceptually and in reality, regarding the material topics identified? Are there – for Telefonica – lessons to be learned from this comparison?
- What is your final concrete (set of) recommendation(s) to Telefónica regarding the issues that are addressed in the case in the section for the “Future”? For example, do you recommend a different method for establishing the materiality matrix? Should the matrix play a different role in the organization than it seemed to have in the case? Are there particular KPIs/measures that the company should report on because of materiality, and if so, why? Are these recommendations in line with adopting a “Creating Shared Value” philosophy?
- Look at the latest sustainability report of Telefónica. Has the report progressed in a way that is in line with your recommendations?
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Developing the Materiality Matrix at Telefonica Case Answers
1. Explain as clearly as possible the process of building a materiality matrix, as is seen in the example of Telefónica. (Imagine you have to write a manual for your colleague at work).
Telefonica developed a materiality matrix to detect which topics were of high, medium, and low interest for the company’s different stakeholder groups and its strategy and business; it thereby followed the GRI guidelines on how to define material topics.
The materiality matrix is thereby orientated toward risk and opportunities, but a higher emphasis on risk management -> business opportunities comes from the management of risks, as per Telefonica.
The topics of interest were put in a matrix; the horizontal axis represented the company (its strategy and business), and the vertical axis’s interests.
Telefonica’s matrix also determines the different ranking of the issues on a scale of interest (low, medium, or high) but mainly emphasizes topics on risk management rather than sustainable opportunities and stakeholder management.
Two stages were followed to create the map:
- identifying relevant or potential firm/stakeholder categories and/or issues (done by using OECD, ILO, DJSI, etc.) – TABLE A
- prioritization of issues depending on stakeholders’ level of interest and their impact on Telefonica’s strategy, taking into account the Bravo!Program
Material topics were prioritized, accounting for actual and potential impact, and were grouped into three areas: economic dimension, social dimension, and environmental dimension.
External opinion was carried out as a survey.
2. What is the purpose of the materiality matrix (at Telefónica)? Is it intended to be for external reporting alone?
The materiality matrix is oriented toward risks and opportunities, but it places more emphasis on risk management. Business opportunities come from the management of risk.
Manage risks that are important for stakeholders but need to be important for business. Dialogue with stakeholders to detect relevant topics allowed the company to mitigate risks, identify new business opportunities, and improve financial results, but for Telefonica rather than external than internal stakeholders.
The materiality matrix is a way to understand the sustainability of the company hand-in-hand with the business. The main topics that were identified determined the structure and content of the sustainability report. Its application on Telefónica mainly focuses on risk management rather than including opportunity management in parallel.
But, following Porter & Kremer (2006), the matrix in itself is not sufficient to formulate an exhaustive corporate sustainable strategy from a shared value perspective. This is due to the strong emphasis on stakeholder management of the materiality matrix. Not only for external but also for internal understanding of core CSR focus activities.
3. Do you think the scheme to determine the materiality of each issue is “robust”? (How easy/difficult would it be to find a topic in a different area of the matrix? i.e., carefully try to understand the method(s) behind placing topics on the axes.)
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