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Determining Materiality

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Our annual process for determining what is material to Altron ensures that not only are the key drivers of our business strategy still relevant but that the material focus areas within each of these value drivers are also still pertinent.

Our ongoing business sustainability journey
Sustainable, ethical and transparent business practices have always been part of how Altron does business. Since we formalised our sustainable business strategy in 2012 and began reporting in an integrated manner, sustainability has become more entrenched in all our business processes. This ensures that the Altron board and the group’s management teams, at corporate and operational level, have access to a cohesive view of the business, which contributes to integrated thinking and the ability to make informed decisions.

Our process for determining materiality helps us identify those issues that have the greatest potential to impact on the sustainability and success of the company. While all businesses face a wide variety of issues, both the Global Reporting Initiative’s (GRI) G4 reporting guidelines and the International Reporting () Framework encourage organisations to identify and report on the issues that could impact on their ability to meet their core strategic objectives and create value over the short, medium and long term.

When we first started reporting on the issues most material to us, we designed a process for identifying and prioritising these material issues. This process has evolved over the years to one that allows us to distil only those issues that are truly material to our organisation. In 2010 we reported on 52 material issues under 11 strategic themes. Now, thanks to the evolution of our process into one that is more robust and discerning, we are identifying only those issues (risks and opportunities) that are key to the company’s ability to create value. In the 2014/15 financial year we reported on 13 material focus areas and 21 material issues under four core value drivers.

A detailed discussion of the various steps in our current process follows.

STEP 1: DETERMINING OUR BOUNDARY
First we determine our physical boundary, which in turn informs the boundary of our integrated annual report (IAR). This includes all the operations within the Altron group, both local and international over which the group exercises control, however, certain indicators we report on are only relevant to our South African operations. A good example of such an indicator is Broad-Based Black Economic Empowerment (B-BBEE).

To determine our boundary beyond the physical we need to identify everyone and everything that has, or could have, a direct impact on the group, whether it be positive or negative.

While all our stakeholders have the ability to impact our group, the influence of some is naturally greater than that of others. Also, because certain stakeholders are fundamental to the existence of the company they are of greater importance to the group. We have, therefore, categorised our stakeholders as primary, secondary and tertiary stakeholders. These different levels are reviewed and reassessed annually to ensure that stakeholders are still categorised correctly. For the year under review Altron’s stakeholders have been categorised and explained in the table below:

 
Stakeholder level
Stakeholder groups 
Reason for ranking
 
Primary  Employees These stakeholder groups are regarded as our primary stakeholders. 
Not only do they have the greatest potential to impact our company, but our company has a direct impact on these stakeholders. 
Without our primary stakeholders Altron would not be able to exist. 
Investors and shareholders
Board
Secondary  Customers Our secondary stakeholders provide us with the market for our products and services, or with the materials and innovations that enable us to deliver to our customers. 
These stakeholders also have the potential to impact directly on the success of Altron, although Altron has less of a direct impact on these stakeholders
Suppliers
Strategic partners
Government and parastatals
Tertiary  Communities These tertiary stakeholder groups are impacted mainly indirectly by our group’s products and services. 
They do, however, have the ability to affect our licence to operate and our brand reputation
Media
Institutions
NGOs

The categorisation of stakeholders is done in consultation with our operations and our internal communications department. It is also guided by the risks identified in our risk registers as well as feedback received from stakeholder groups throughout the year.

STEP 2: COLLECTING INFORMATION THROUGH STAKEHOLDER ENGAGEMENT
Now that we have defined our boundaries and our stakeholders, we embark on a comprehensive information-gathering process through which we uncover what issues the company and its stakeholders face.

  • We use a combination of one-on-one discussions, internal and external surveys, feedback from social media platforms and the assessment of a variety of internal and external documents.
  • One-on-one discussions
  • Every year, the Head of Sustainability meets one-on-one with:
  • board members, the entire executive committee, the chief executives and chief financial officers of all sub-holding companies and a selection of managing directors and departmental heads, and
  • managing directors of operating companies who make the most significant contribution to the group, departmental heads of these operating companies and operational staff members.

to gain insight into the issues that executive and senior management believe are the most pressing and pertinent to the group. During these discussions they provide detailed information on:

  • the challenges and risks they face;
  • how these are being addressed;
  • the successes of the past year;
  • where the key opportunities lies;
  • the strategies they are employing to mitigate risk and maximise opportunities; and
  • any other issues they regard as relevant to the group.

They also:

  • review the previous year's material issues to ensure that they are still relevant
  • review timeframes that may have changed or whether the material issues level of importance should be reduced; incresed or they should be removed altogether;and
  • raise new issues where relevant.

Every three years this process is extended to include a wider group of employees, managers and department heads in an attempt to ensure that our group’s value drivers and material focus areas remain relevant (the next extended review will take place in 2017).
Every year, as part of the interview process, the group company secretary selects a group of shareholders and investors and meets with them face-to-face to discuss and get feedback on a wide range of issues. The feedback from these meetings is also considered as part of the materiality determining process.

All Altron’s companies ensure they talk to their customers regularly during the year in both formal and informal forums. To support our focus on becoming a more customer-led organisation, we have introduced more key account managers and engagement with our customers is more regular, structured and strategically focused. Our consumer-facing businesses deal extensively with their customers on a one-on-one basis via their contact centres and in the outlets, but also conduct customer surveys as part of their ongoing engagement.
Altron’s sustainability department, as well as relevant operations within the group, engage with our suppliers either through surveys or in one-on-one telephonic discussions regarding their products and services and their sustainability practices, as part of our strategy to consolidate and streamline our supply chain.

One-on-one discussions also take place throughout the year with a range of employees responsible for different functions in the corporate office and across the sub-holding companies. These discussions, which are facilitated by the sustainability department and the internal communications department provide insight into employees’ views on what is happening in the business.

Surveys
We use a number of internal and external surveys to gather information about the issues important to our stakeholders.

We conduct employee satisfaction surveys, climate surveys and company culture surveys and we also conduct surveys with our suppliers.

Most of the operations within the Altron group conduct customer surveys. These include aftersales surveys, regular monthly customer service surveys and ad hoc dipstick surveys

The results of these surveys are collated, analysed and assessed to determine the material issues they highlight. These issues are also included in the materiality determining process.

Documentation
In addition to the deep insight we gain into the issues that our stakeholders believe are important. However, this is not enough to ensure that such issues are material from the one-on-one discussions and surveys, we also conduct an assessment of key internal documentation to cross-check that the feedback we have received from stakeholder groups is aligned with the documented issues that the company has addressed throughout the year.

The documents we consult include quarterly board reports, group executive committee reports, audit committee reports, risk management committee reports and internal audit reports. We also cross reference our evolving list of material issues with the risks on the company risk register, which ranks our key risks and opportunities in terms of their probability and potential to materially impact our business. These rankings are a useful guide to how we prioritise the material issues within the group.

External documentation/reports are also considered as part of the materiality determining process and include external audit reports, changes in legislation, market related information on peers and competitor performance, news clippings and social media reports.

Our stakeholder engagement table (www.altron.com/iar2015/focus/stakeholder-engagement.asp) provides detail on the issues raised by our stakeholder groups during the year under review, our response to these and what our focus will be for each stakeholder group in the year ahead.

STEP 3: RANKING THE MATERIAL ISSUES

We use the information accumulated from the processes we have followed in Step 2 to identify the material issues facing the company. These now need to be ranked according to whether they are a:​

  • Material issue: Most material and critical issues being addressed
  • Priority issue: Material issues with a priority focus going forward
  • Focus issue: Material issues currently being monitored and managed but with the potential to become a priority
  • Controlled issue: Material issues that are being monitored and managed on an ongoing basis

We use a numbered ranking, explained below, to group the issues into one of these four materiality groups:

  • The top three issues raised by our primary stakeholder groups are given a rating of 3, their next three issues are given a rating of 2, and their last issues are all given a rating of 1
  • The top three issues raised by our secondary stakeholder groups are given a rating of 2 and all their other issues are given a rating of 1
  • Any issues raised by our tertiary stakeholder groups are given a rating of 1.

Documentation reviewed as part of the materiality determination process gets scored using the same rating system as above. Internal reports receive a 1 to 3 rating for top issues, external reports a 1 to 2 rating and allsocial media feedback receives a rating of 1.

Each total we obtain through this process is then divided by the numbers of people and sources of information included in obtaining the total for that specific issue. This helps to counterbalance the effect of obtaining a large number of issues from our secondary and/or tertiary stakeholders.

The material issues with the greatest number weighting are grouped as material focus areas, while the remaining issues are grouped, according to their rating as either a priority, a focus area or and issue that is being controlled.

We also rank each of the issues according to whether they are short-, medium-, or long-term issues. This process is more subjective, but is based on direct questions asked during the many interviews conducted with senior managers in each operation, as well as the trends coming through in board, executive, audit and risk committee reports during the year.

This process was carried out for both Altron TMT and Altron Power, allows us to determine a strategic materiality map for each of these business units. The feedback on these strategic diagrams and the overall feedback from stakeholders are combined and then further distilled to provide the issues material to the group as a whole. The materiality diagram for all three operations Altron, Altron TMT and Altron Power can be viewed in the materiality diagram section(www.altron.com/iar2015/focus/issues.asp), or under the Altron TMT (www.altron.com/iar2015/company/tmt.asp) and Altron Power at a glance(www.altron.com/iar2015/company/power.asp)

STEP 4: MAPPING AND CATEGORISING THE MATERIAL ISSUES
Once we have our list of ranked material issues is in place, we categorise them further under one of the four core value drivers and their respective focus areas: financial sustainability, human capital sustainability, sustainability through products and services and sustainability through external relationships. These are the areas we call our four value drivers because they inform our ability to create value for our stakeholders and ensure we operate in a sustainable manner.
Each value driver represents at least one of the capitals as they are presented in the <IR> Framework:    

  • Financial sustainability represents financial capital;   

 

  • Human capital sustainability represents human and intellectual capital;  

 

  • Products and services sustainability represents manufactured and intellectual capital; and    

 

  • External relationships represents social and relationship capital and natural capital.

Within each of our four value drivers we identify the following material focus areas:    

  • Profitable growth
  • Capital and cash efficiencies 
  • Transformation
  • Human resources
  • Company culture 
  • Innovation, research and development and intellectual property
  • Products and service offerings 
  • Clients and customers
  • Governments and parastatals
  • Strategic partners
  • Suppliers
  • Environmental
  • Corporate social investment

With these categories and sub-categories in place we are able to map each material issue according to the value driver and material focus area under which it falls.

We recognise that each of the four value drivers impacts and affects the others. For instance, financial means are required to develop skills and manage talent in the group, or the development of new products and services is closely linked to the issue of meeting customer needs and intellectual capital.

This is to be expected in an integrated business. Where such a link exists, we have indicated it with the relevant symbol next to the applicable material issues.

STEP 5: AN EVOLVING PROCESS
The process for determining materiality in Altron is ongoing and its progression every year is important as it ensures that the value drivers, material focus areas and material issues remain relevant to the changes in our business and the environment in which it operates.
We do not expect that the key value drivers of the business will change significantly over time as the current value drivers have been in place for the past four years. Our material focus areas have also remained relatively static, with one small change this year when we combined intellectual property management with innovation and research and development, as there is a lot of synergy between these three issues and all three are important business assets that require regular attention.

The most significant changes that take place annually are at the material issue level. New material issues emerge and others fall off when they are no longer seen as material. The ranking of material issues also changes depending on the risk attached to them. Each of the four value drivers discusses the year-on-year changes in material issues, relevant to that specific value driver, in more detail. One year the risk attached to a particular material issue may be very high and by the following year it may have been addressed and no longer require a key focus. Every year we review each issue and its ranking. Our materiality diagram (www.altron.com/iar2015/focus/issues.asp) represents the current year’s most material issues and the integration of the various value drivers with those material issues.

MATERIALITY DIAGRAM
One of the key drivers in identifying our material issues is our robust stakeholder engagement process (www.altron.com/iar2015/focus/stakeholder-engagement.asp). Our four value drivers, material focus areas and material issues identified in this materiality diagram are annually reviewed and considered as part of the group’s sustainable business strategy.

These smaller icons repeated indicate strategic integration between the various value drivers. All material issues are ongoing and the timeframe only indicates when specific issues will be achieved or completed. Click here to view the Materiality Diagram

Value drivers: 

  Financial Sustainability  Human Capital  Products and Services External Relationships

 Click to view larger image