A materiality analysis meeting nonfinancial reporting requirements: With the combination of analytic hierarchy process and failure mode and effects analysis

IN

DEGREE PROJECT ENERGY AND ENVIRONMENT, SECOND CYCLE, 30 CREDITS

STOCKHOLM SWEDEN 2019,

A materiality analysis meeting non- financial reporting requirements

With the combination of analytic hierarchy process and failure mode and effects analysis ADRIEN DELEBECQUE

KTH ROYAL INSTITUTE OF TECHNOLOGY

SCHOOL OF ARCHITECTURE AND THE BUILT ENVIRONMENT

TRITA ABE-MBT-19667

www.kth.se

A materiality analysis meeting non-financial reporting requirements En väsentlighetsanalys som uppfyller icke-finansiella rapporteringskrav

Keywords: corporate social responsibility, non-financial reporting, materiality analysis, multi-criteria decision-making

Degree project course: Strategies for sustainable development, Second Cycle AL250X, 30 credits

Author: Adrien Delebecque Supervisor: Cecilia Sundberg Examiner: Cecilia Håkansson

Department of Sustainable Development, Environmental Science and Engineering School of Architecture and the Built Environment

KTH Royal Institute of Technology

1

Abstract

The assessment of the environmental and social impact of companies could be a key lever towards a more sustainable society. The aim of this report is to develop a quantitative approach based on multi-criteria decision-making methods for organizations to conduct a corporate social responsibility materiality analysis. Through a literature review, a knowledge gap was identified on practical

methods to implement a materiality analysis that meet non-financial reporting requirements.

Therefore, the features of such a method were identified and a method combining analytic hierarchy process and failure modes and effects analysis was offered. The method was then used within a company in order to illustrate how the method should be applied in practice and to assess its application. The analytic hierarchy process was used to determine the relative weights of three criteria: risk, opportunity and influence on stakeholders’ assessments & decisions. Assessment scales were created for three failure modes and effects analysis indices for the criteria of risk and

opportunity: severity, occurrence and control. A unique value can then be calculated for each corporate social responsibility issue in order to identify the material ones. The application of the methodology to a company underlined a few critical factors to be further investigated, in particular the quantification of the scales used for assessment and the selection of stakeholders.

Keywords: corporate social responsibility, non-financial reporting, materiality analysis, multi-criteria decision-making

Sammanfatning

Bedömningen av företagens miljöpåverkan och sociala effekter kan vara en nyckelhävarm mot ett hållbart samhälle. Syftet med denna artikel är att utveckla ett kvantitativt tillvägagångssätt baserat på beslutsfattningsmetoder med flera kriterier för organisationer att utföra en väsentlighetsanalys av företagets sociala ansvar. Genom en litteraturöversikt identifierades kunskapsgap om praktiska metoder för att genomföra en väsentlighetsanalys som uppfyller icke-finansiella rapporteringskrav.

Därför identifierades funktionerna i en sådan metod och en metod som kombinerar analytisk hierarkiprocess och feleffektsanalys erbjuds. Metoden användes sedan inom ett företag för att illustrera hur metoden bör tillämpas i praktiken och för att bedöma dess tillämpning. Den analytiska hierarkiprocessen användes för att bestämma de relativa vikterna för tre kriterier: risk, möjlighet och inflytande på intressenternas bedömningar och beslut. Utvärderingsskalor skapades för tre

feleffektsanalysindex för kriterierna för risk och möjlighet: allvarlighetsgrad, förekomst och kontroll.

Ett unikt värde kan sedan beräknas för varje företags sociala ansvar för att identifiera de materiella.

Tillämpningen av metodologin på ett företag underströk några kritiska faktorer som ska undersökas ytterligare, särskilt kvantifieringen av skalorna som används för bedömning och urvalet av

intressenter.

Nyckelord: företagets sociala ansvar, icke-finansiella rapportering, väsentlighetsanalys,

beslutsfattande med flera kriterier

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Table of Contents

1. Introduction ... 4

2. Definition of materiality ... 6

2.1. Presentation of materiality analysis ... 6

2.1.1. Topics in materiality analysis ... 7

2.1.2. Material topic ... 8

2.2. Presentation of the Non-Financial Reporting Directive ... 9

2.2.1. Example of France ... 10

2.2.2. Example of Sweden ... 10

2.3. Linking materiality analysis and NFRD ... 11

2.4. Key points to remember ... 11

3. Literature review and requirements of the methodology ... 12

3.1. Methodology of the literature review ... 12

3.2. Literature review ... 12

4. Methods ... 15

4.1. Presentation of AHP and FMEA ... 15

4.2. Framework of the methodology ... 17

4.3. Predefining stakes ... 17

4.4. Identifying stakeholders ... 18

4.5. Consulting stakeholders ... 18

4.5.1. Weighting the criteria with AHP ... 18

4.5.2. Assessing consistency of judgement ... 19

4.5.3. Interviewing stakeholders ... 20

4.6. Analyzing and plotting results ... 24

4.6.1. Plotting results ... 24

4.6.2. Calculating the unique value ... 24

4.6.3. Optional: setting a threshold ... 24

4.7. Identifying material stakes ... 24

4.8. Application to a company ... 25

4.8.1. Presentation of the company ... 25

4.8.2. List of stakes ... 25

4.8.3. List of stakeholders ... 28

5. Results and consequences for decisions ... 29

6. Discussion ... 37

7. Conclusion ... 42

References ... 43

3

Appendix ... 47

4

1. Introduction

Through their activity and business ecosystem, companies are major players of the economy, bound to favorably or unfavorably impact society’s efforts towards sustainability, that is the ability of the society to meet the needs of the present without compromising the ability of future generations to meet their own needs (World Commission On Environment and Development, 1987).

In order to show their commitment to stakeholders, more and more organizations have adopted sustainability reporting (Hsu et al., 2013; Jain and Islam, 2016) and communicate about their economic, environmental, and/or social impacts, for purposes of transparence and accountability (Hess, 2007). As an organization cannot communicate about all its stakes, a tool is required to decide about which information to report on. Moreover, this choice is intertwined with the integration of sustainability within the business strategy as a company is expected to communicate about its most relevant issues in terms of sustainability implications and allocate its resources and efforts

accordingly (Khan et al., 2016). This approach is called a materiality analysis and it is the bedrock of sustainability reporting (Eccles et al., 2014): organizations must include the stakes that are material for their activity.

Even though performing a materiality analysis is not legally mandatory for a large number of organizations around the world, more and more companies must meet regulatory obligations regarding non-financial reporting. In particular, the European Non-Financial Reporting Directive (NFRD) (2014/95/EU) requires large companies to report on several sustainability issues. Over the past few years, this directive has been translated into the national legislations of EU countries. For example, in France, some companies are subject to the Statement on Extra-Financial Performance translating the NFRD into French law in article L225-102 of Commercial Code. This statement is based on the relevance of information to be published and the presentation of companies’ extra-financial performance regarding its major corporate social responsibility (CSR) risks.

According to the recognized international standard for CSR, ISO 26 000, CSR is the

“responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that:

- contributes to sustainable development, including health and the welfare of society, - takes into account the expectations of stakeholders,

- is in compliance with applicable law and consistent with international norms of behavior, - is integrated throughout the organization and practiced in its relationships”.

To date, few papers offer practical methods to identify the most relevant sustainability issues for an organization and its stakeholders (Bellantuono et al., 2016; Calabrese et al., 2017; Hsu et al., 2013).

The aim of this report is to develop a quantitative approach based on multi-criteria decision-making (MCDM) methods for organizations to conduct a CSR materiality analysis. In order to achieve this aim, a definition of materiality will be drawn from several international frameworks and the NFRD.

The requirements of a relevant quantitative approach will be investigated through a literature review. Then, a method using analytic hierarchy process, a MCDM method based on pairwise comparisons, and failure mode and effects analysis, a risk management method based on

assessment scales, will be offered. Finally, the application of the method to a French company will

enable an evaluation of its practical use.

5 Definitions

- risk (ISO, 2018)

According to ISO 31000, risk is the “effect of uncertainty on objectives” and an effect is a positive or negative deviation from what is expected.

Risk is often expressed in terms of a combination of the consequences (or severity) of an event and the associated likelihood (or probability) of occurrence.

In this paper, as it considered in the NFRD and in common speech, a risk means a negative effect whereas an opportunity means a positive effect.

- risk analysis (ISO, 2018)

According to ISO 31000, risk analysis is the “process to comprehend the nature of risk and to

determine the level of risk”.

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2. Definition of materiality

2.1. Presentation of materiality analysis

In order to identify the most important CSR stakes of its activity, a company can carry out a

materiality analysis. It is a prioritization process used to decide about which stakes really matter (i.e.

which ones are the most material) and which ones should be addressed first. It is made up of five steps (inspired by Deloitte, 2018): the identification and definition of stakes, the identification of stakeholders, the consultation of those, the analysis of results and the identification of the material stakes (Figure 1).

Figure 1: Materiality analysis framework, inspired by Deloitte (2018) (the main steps were taken from this source)

In order to identify a material topic, a precise definition is required. In particular, the topics to be covered, the boundaries and the point of the view of the materiality must be defined. For lack of a consensus and a definitive definition, the main international frameworks bring out a few differences regarding these questions, as detailed below.

The two most used sources of this section are the ISO 26 000 standard for CSR and the guidelines published by the Global Reporting Initiative (GRI). GRI is a multistakeholder non-profit Amsterdam- based organization (Fonseca et al., 2014) which publishes the most popular set of voluntary guidelines for sustainability reporting and has become the de facto standard in many sectors (Roca and Searcy, 2012; Skouloudis et al., 2009). Nevertheless, it must be underlined that there are many

1. Predefining stakes

3 2. Identifying stakeholders

3. Consulting stakeholders

4. Analyzing and plotting results

5. Identifying material stakes

7 other frameworks (e.g. UN Global Compact, UN’s SDGs, SASB) and their number keeps increasing (Siew, 2015).

2.1.1. Topics in materiality analysis

The stakes to put under scrutiny for a materiality analysis are encompassed by the guidelines about CSR approaches. According to the ISO 26 000 standard, the topics to be covered within a CSR approach are the decisions and activities of the company that have consequences on stakeholders and sustainable development (a stakeholder being an individual or group having an interest in the decisions and activities of the company).

In particular, this standard defines 7 core subjects considered to cover extensively the CSR stakes relevant for most companies: organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues and community involvement and development (Table 1).

Table 1: List of ISO 26000 issues

ISO core subjects ISO issues

CS1: Organizational governance (OG) –

CS2: Human rights (HR) HR1: Due diligence

HR2: Human rights risk situations HR3: Avoidance of complicity HR4: Resolving grievances

HR5: Discrimination and vulnerable groups HR6: Civil and political rights

HR7: Economic, social and cultural rights HR8: Fundamental principles and rights at work CS3: Labour practices (LP) LP1: Employment and employment

relationships

LP2: Conditions of work and social protection LP3: Social dialogue

LP4: Health and safety at work

LP5: Human development and training in the workplace

CS4: The environment (E) E1: Prevention of pollution E2: Sustainable resource use

E3: Climate change mitigation and adaptation E4: Protection of the environment, biodiversity and restoration of natural habitats

CS5: Fair operating practices (FOP) FOP1: Anti-corruption

FOP2: Responsible political involvement FOP3: Fair competition

FOP4: Promoting social responsibility in the value chain

FOP5: Respect for property rights CS6: Consumer issues (CI) CI1: Fair marketing, factual and unbiased

information and fair contractual practices CI2: Protecting consumers' health and safety CI3: Sustainable consumption

CI4: Consumer service, support, and complaint and dispute resolution

CI5: Consumer data protection and privacy

8 CI6: Access to essential services

CI7: Education and awareness CS7: Community involvement and development

(CID)

CID1: Community involvement CID2: Education and culture

CID3: Employment creation and skills development

CID4: Technology development and access CID5: Wealth and income creation

CID6: Health

CID7: Social investment

Likewise, the GRI standards suggest a list of potential materials topics through the three categories of sustainability: economic (GRI 200), environmental (GRI 300) and social (GRI 400) (GRI-Global

Reporting Initiative, 2016a) (Appendix 1

).

2.1.2. Material topic

In the finance field, materiality means a threshold for influencing the economic decisions of those using an organization’s financial statements, investors in particular (Messier et al., 2005). Therefore, it is logical to find definitions of materiality centered about value creation within reporting guidelines with a holistic view, as for the International Integrated Reporting Council (IIRC) guiding principles, which define it as “matters that substantively affect the organization’s ability to create value over the short, medium and long term” (IIRC, 2013). The effect of a matter is then evaluated by its magnitude and its likelihood of occurrence.

Likewise, the American framework published by the Sustainability Accounting Standards Board (SASB) uses the definition given by the U.S. Supreme Court in 1976: information is material if there is

“a substantial likelihood that the disclosure of the omitted fact would have been viewed by a reasonable investor as having significantly altered the ‘total mix’ of information made available (SASB, 2017; US Supreme Court, 1976).

Regarding sustainability reporting, a material topic can be defined as “a topic (an economic, environmental or social subject) reflecting the organization’s significant economic, environmental, and social impacts or substantively influencing the assessments and decisions of stakeholders”

(GRI-Global Reporting Initiative, 2016a). In particular, an impact refers to “effects on the economy, the environment, and/or society (positive or negative)”, while it does not focus on impacts on the organization though it can be related to it (GRI-Global Reporting Initiative, 2016a).

Therefore, assessing whether a topic is material requires considering two dimensions. They form the

axes of a materiality matrix which is a common visual representation for the prioritization of topics

(Figure 2). The GRI standards ask that companies disclose the boundary of the material topic, i.e. “a

description of where the impacts occur for a material topic, and the organization’s involvement with

those impacts” (GRI-Global Reporting Initiative, 2016a).

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2.2. Presentation of the Non-Financial Reporting Directive

The directive 2014/95 of the European Parliament requires certain large undertakings to disclose non-financial and diversity information. It amends directive 2013/43 which was only dealing with financial reporting.

The Non-Financial Reporting Directive requires (European Union, 2017) to disclose information

“necessary for an understanding of the undertaking's development, performance, position and impact of its activity, relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters”. As confirmed by its guidelines, the impacts can be either positive or negative.

In particular, an undertaking should disclose “the principal risks related to those matters linked to the undertaking's operations including, where relevant and proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the undertaking manages those risks”. It is important to mention that risks should be understood as

“negative impacts” here (European Union, 2019).

Therefore, the Non-Financial Reporting Directive has a double materiality perspective (European Union, 2019): a financial materiality, through the reference to the company’s “development,

performance, position” and an environmental and social one, through the reference to “impact of its activity”.

The guidelines on non-financial reporting (European Union, 2017) underline six key principles for good non-financial reporting, that disclosed information should be: (1) material; (2) fair, balanced and understandable; (3) comprehensive but concise; (4) strategic and forward-looking; (5)

stakeholder oriented; and (6) consistent and coherent. Therefore, as mentioned in (5), companies are expected to consider the information needs of all relevant stakeholders.

Significance of economic, environmental and social impacts Influence on

stakeholder assessments

and

decisions

10

The NFRD is transcribed into French national law by means of article L225-102 of Commercial Code (Table 2).

Table 2: NFRD requirements in France

Company Scope 2 of these criteria must be met:

1. Over 500 employees

2. PIEs (Public Interest Entities): listed companies, credit institutions and insurance providers (with a société anonyme legal form) with

- Net turnover over EUR 40 million;

or

- Balance sheet total over EUR 20 million 3. Non-listed sociétés anonymes (a French legal form) and non-listed investment funds with - Net turnover over EUR 100 million

Matters • Environmental performance

• Social and employee matters

• Human rights performance

• Corruption and anti-bribery matters

Report features • A description of the undertaking’s business

model

• Company policies relating to non-financial matters, and the outcomes of those policies

• Principal risks related to non-financial matters and business activities

• Any non-financial KPIs which are used

2.2.2. Example of Sweden

In Sweden, the NFRD is transposed to national legislation through the Annual Accounts Act (Års- redovisningslagen) (Table 3).

Table 3: NFRD requirements in Sweden

Company Scope All companies meeting these criteria:

1. Over 250 employees

2. - Net turnover: over SEK 350 million;

or

- Balance sheet total: over SEK 175 million

Matters • Environmental

• Social and employee matters

• Respect for human rights

• Anti-corruption and bribery matters

Report features • A description of the undertaking’s business

model

• Company policies relating to non-financial matters, and the outcomes of those policies

• Principal risks related to non-financial

11 matters and business activities

• Any non-financial KPIs which are used

• An explanation of the sums indicated in the financial statement which are relevant to corporate social responsibility

Worth noting, Sweden has chosen strict standards by applying its rules to all types of companies with over 250 employees (compared to a threshold of 500 employees and a focus on public interest entities for most European countries) (GRI-Global Reporting Initiative, 2017).

2.3. Linking materiality analysis and NFRD

The NFRD states that undertakings subject to the directive may rely on international frameworks for their materiality analysis, and mention the Global Reporting Initiative, among other recognized international frameworks (European Union, 2017).

The GRI have pondered on the double materiality perspective introduced by the NFRD and have concluded that there is a high degree of overlap between the topics considered environmentally and socially material by reporting organizations, and those considered material by investors, i.e.

financially material (GRI-Global Reporting Initiative, 2016b). Investors are indeed often considered to be important stakeholders and themselves consider it important what matters to non-financial stakeholders.

Regarding a more direct comparison between the NFRD and the GRI standards, the GSSB (Global Sustainability Standards Board) has issued a linkage table between the two frameworks, assuring that they are both compatible (GRI-Global Reporting Initiative, 2017).

2.4. Key points to remember

The consultation document on the update of the non-binding guidelines on non-financial reporting of 2019 (European Union, 2019) has eventually acknowledged the double-definition of materiality in sustainability reporting: a financial perspective, directly inherited from its use in the finance field, and an environmental and social perspective, more closely related to the ISO 26 000 standard’s definition of CSR. It is consistent with the materiality definition of the GRI standards and both frameworks, NFRD and GRI, acknowledge the importance of taking into account stakeholders, which brings a third dimension: the influence of a topic on stakeholders’ assessments & decisions.

The GRI standards ask to disclose both positive and negative impacts (GRI-Global Reporting Initiative,

2016a), whereas the NFRD asks as well to disclose information about topics with either a positive or

negative impact but with a specific focus on (negative) risks related to these topics (European Union,

2017).

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3. Literature review and requirements of the methodology

3.1. Methodology of the literature review

To define the requirements of the materiality analysis methodology, a literature review was conducted.

At first, to perform this literature review in a systematic way, some keywords were defined

“materiality analysis”, “sustainability reporting”, “sustainability assessment”. The KTH primo database was used in the process of searching relevant literature. After that a knowledge gap was identified, the snowball method was applied in order to find more literature about the subject, in particular from the few papers dealing with quantitative methods for assessing materiality (Bellantuono et al., 2016; Calabrese et al., 2016; Hsu et al., 2013).

3.2. Literature review

The existing literature about sustainability reporting stresses its role, and by extension the role of materiality analysis, as a way to address sustainability issues in a relevant way and integrate CSR into the company’s strategy. As discussed by Porter and Kramer (2007), a company must not invest in sustainability without a strategic approach, as it risks dealing with activities not related to its core business. Porter and Kramer (2007) argue that CSR is not only a way to improve brand image, but also a way to foster innovation, competitive advantage, and sustainability in the long term. Indeed, many papers argue also that the integration into companies’ strategies is crucial to achieve

competitiveness in the long term, and wellbeing of employees, stakeholders and society in general (Engert et al., 2016; Scherrer et al., 2007). It has been reported in the past that sustainability was difficult to integrate within strategy (Vandaele and Decouttere, 2011), resulting in sustainability strategies not aligned with the business ones (Ahmed and Sundaram, 2012). That is why Engert et al.

(2016) underlines that research should focus on how to integrate corporate sustainability into strategic management in practice.

Moreover, as recommended by most international frameworks, having a stakeholder-oriented sustainability approach can improve company’s performance (Michelon et al., 2013). Therefore, the creation of practical methods to address expectations and perceptions of stakeholders is needed (Cairns et al., 2016). Companies’ stakeholders may notably include suppliers, internal staff, such as employees and workers, customers, including shareholders, investors, and consumers, NGOs and local and regional communities. It is important to highlight that these groups are not all equally salient and could be classified depending on their power, urgency and legitimacy as suggested by Mitchell et al. (1997). Engaging stakeholders is also a way to align performance with sustainability (Bellantuono et al., 2016) and it can prevent the major risk in non-financial reporting of corporate managers publishing only what they consider important information. A study of sustainability reports on large-scale mining conflicts revealed a low quality of data on contentious issues even though the mining companies thought the data reported was comprehensive and accurate (Murguía and Böhling, 2013). These different factors demonstrate the relevance of the third dimension of

materiality previously discussed, i.e. the influence on stakeholders’ assessments and decisions, both as a way to improve company’s performance and to engage stakeholders by having them contribute to the decision-making process.

Besides, all companies need to address their most relevant sustainability issues, even SMEs which

tend to have less resources and greater constraints on capabilities. These companies must also be

able to overcome the limitations they face in order to gain competitive advantage from such

13 opportunities (Brammer et al., 2012). A sustainability reporting approach which would be compatible with these limitations is still to be created in the field (Battisti and Perry, 2011; Baumann-Pauly et al., 2013).

A relevant approach would also have to tackle the high subjectivity of the process. Based on human judgement, the approach would have to avoid biases of personal opinions, expectations and

experiences (Zhou, 2012) and successfully deal with uncertainty and vagueness inherent to decision- making problems (Yan and Ma, 2015).

Regarding existing practical approaches of carrying out a materiality analysis, the guidelines and international frameworks do not provide specific directions whereas research on quantitative methods for assessing materiality is scarce (Bellantuono et al., 2016; Calabrese et al., 2017; Hsu et al., 2013). Moreover, the few existing studies do not deal effectively with the issues of subjectivity and there is a lack of methods addressing the issue of SMEs’ shortage of human, temporal and financial resources as evoked in Calabrese et al. (2016).

Because of the need for the engagement of the stakeholders in a materiality analysis and the observed limitations of the literature, the offered approach in this paper will use decision-science methodologies and be based on multi-criteria decision-making (MCDM) methods. This family of techniques aim at making judgements on a defined and finite set of alternatives over a set of decision criteria. The decision-makers have to provide their preferences on each alternative with respect to each attribute, using a scale of judgement which can be expressed in many different ways, from numerical values to verbal labels. Previous research suggests that this kind of methods can tackle the multidimensionality and subjectivity of sustainability decision-making problems (Cinelli et al., 2014; Ishizaka and Siraj, 2018; Merad et al., 2013).

In the literature, three papers have recently offered quantitative methods to carry out a materiality analysis based on MCDM methods. An approach based on a fuzzy Analytic Hierarchy Process (AHP) is offered by Calabrese et al. (2017). This sophisticated method ranks ISO core subjects through the representation and assessment of linguistic judgements by triangular fuzzy numbers. The relative weight of issues depends on their relative significance to the different activities of the company: firm infrastructure, HR management, technology development and procurement. While this method involves stakeholders in decision-making and establishes a prioritization of several sustainability issues, it requires a high number of pair-wise comparisons and therefore considerable time efforts.

The application of the method presented in the paper uses the seven ISO core subjects because of that whereas they are only broad categories of sustainability and a relevant and comprehensive materiality analysis has to be more profound and deal with the 36 ISO issues (see Table 1).

Another paper presents a method based on the failure modes and effects analysis (FMEA) combined with analytic network process (ANP) (Hsu et al., 2013). The evaluation criteria are occurrence, severity and detection on a five-point scale and their relative weight are calculated through pairwise comparisons. Occurrence values are defined as the percentage of concerned stakeholders. Severity values are defined as the severity of effects on strategic engagement objective. Detection values are defined as the level of stakeholder concerns. Given the low number of criteria for this method, a pairwise comparison is easy to implement but this approach does not deal with the salience of stakeholders and consistency of their judgement. Moreover, the interpretation of the criteria of FMEA, i.e. occurrence, severity and detection, is not motivated whereas it appears as an

operationalization problem worthy of discussion. In particular, Hsu et al. (2013) do not justify how

14 the interpretations of occurrence and detection enable to assess what they are supposed to

represent in the real world: respectively, probability of failure and probability of not detecting a failure. Also, the paper does not provide any method to set threshold in order to identify the most material topics.

Bellantuono et al. (2016) offer a multi-attribute group decision method based on the assessment of sustainability issues on a verbal labels scale and the pairwise comparison of these labels to handle subjectivity of stakeholders. It also suggests to prioritize stakeholders based on their salience for the different sustainability dimensions, i.e. economic, environmental and social. Nevertheless, the calibration of verbal labels may require a lot of pairwise comparison depending on the number of scales used. If the analysis is based on few criteria, this method is well-suited as it sets thresholds and checks consistency of judgements of stakeholders.

Drawing from this literature review, the requirements of the materiality analysis are summarized in Table 4.

Table 4: Requirements of the materiality analysis

Requirement Definition

• Acknowledging the multidimensionality of materiality

The method should adopt the double-definition of materiality: financial and

environmental/social.

• Being in accordance with the NFRD and its guidelines

The method should respect the directions of the NFRD and follow the guidelines published to improve the relevancy of methods. In

particular, the method should enable to focus specifically on risks.

• Engaging stakeholders The method should take into account stakeholders’ expectations and assess the influence of a topic on their assessments and decisions.

• Enabling accentuating specific stakeholders’ opinions

The method should enable to balance the views of different stakeholders, as some of them may be more knowledgeable and relevant regarding specific topics.

• Handling subjectivity of individuals and checking for consistency of judgement

The method should deal with ambiguity and uncertainty that may inescapably affect stakeholders’ perceptions.

• Resulting in a simple visual

representation, like a materiality matrix

The method should result in a visual

representation enabling any reader to easily understand the results of the analysis and its conclusions.

• As a prioritization tool, enabling setting materiality thresholds

The materiality and risk analyses are ultimately prioritization and selection tools and should therefore enable to set thresholds in order to identify material topics.

• Making trade-offs between accuracy and efforts

Efforts required by the method should be low

enough to facilitate its implementation. It will

particularly be beneficial for small companies

which usually have limited time and resources

to devote to reporting activities.

15

4. Methods

In response to the scarcity of academic research, this report offers a method to conduct a materiality analysis meeting the requirements presented in Table 4. The proposed method will use both analytic hierarchy process (AHP) and failure modes and effects analysis (FMEA), as MCDM methods enable comparing alternatives according to qualitative and quantitative criteria seem appropriate for materiality analysis (Mardani et al., 2015b).

In this method, AHP is used to determine the relative weights of the three criteria related to materiality analysis, as described in section 1: risk, opportunity and influence on stakeholders’

assessments & decisions. After defining a preliminary list of stakes, selected stakeholders are consulted through the use of assessment scales in order to evaluate three FMEA indices for the criteria of risk and opportunity: severity, occurrence and control. A unique value is then calculated for each corporate social responsibility issue in order to identify the material ones.

This method was then applied to a French large-sized company in order to evaluate its practical use and investigate areas for improvement.

4.1. Presentation of AHP and FMEA

AHP aims to divide a complex decision problem in a hierarchy of smaller sub-problems (Saaty, 2008, 1980). AHP is the most used MCDM method in the literature and the use of such methods in the sustainability field is common (Mardani et al., 2015a).

Through a set of pairwise comparisons, criteria are weighted at all the levels of the hierarchy (Figure 3). In a full AHP hierarchy, for each criterion, a score is then assigned to each alternative through pairwise comparisons again. Eventually, the criteria weights and the option scores are combined to determine a global score for each alternative, and then a ranking.

Figure 3: AHP hierarchy with two levels of criteria and 3 alternatives (not represented) (example inspired from Saaty and Vargas, 2012).

For example, if the goal is to buy a house, a simple AHP hierarchy could take into account 3 criteria:

the price of the house, the renovation costs, and the size (see Figure 4 with 3 alternatives).

16

The use of AHP is motivated by the fact that the criteria and alternatives are strongly interrelated in sustainability decision-making problems (Calabrese et al., 2017) and such method foster decision- makers to consider all elements of the decision problem and their interactions (Hajkowicz et al., 2000; Konidari and Mavrakis, 2006). Moreover, MCDM methods using direct rating of alternatives and criteria require less efforts, but the AHP evaluation should be more precise as decision-makers assess two elements at a time (Ishizaka and Siraj, 2018).

As visible in 3.4.1, for a full AHP hierarchy with m criteria and n alternatives, the number of pairwise comparisons required is m(m-1)/2 for the criteria and m*n(n-1)/2 for the alternatives. Given the fact that the stakes selection is usually made up of more than 20 stakes, a combination of AHP for weighting criteria and FMEA for assessing stakes will be used.

FMEA is a framework tool used to measure the risk of failures in systems and is currently utilized in many industries, e.g. automotive, aerospace and electronic industries, during the design stage of a product (Stamatis, 1995). It is also used in the context of risk management (Mohamed and Robinson, 2010) and from this perspective, “failure mode” must be understood as a “risk” as suggested

in(Project Management Institute, 2013). The choice of FMEA is motivated by the NFRD requiring to focus specifically on (negative) risks and by its use in the literature for similar methods (Hsu et al., 2013).

FMEA traditionally uses three indicators: occurrence (i.e. probability of failure), severity and

detection (i.e. probability of not detecting a failure). However, as argued by many scholars (Bowles,

2003; Carbone and Tippett, 2015), the use of “detection” can be misleading and here it will be

replaced by “control”. It is defined as “the ability of the risk response strategy to detect and control

the root causes before they lead to the occurrence of the risk event, and to control the effect given

the occurrence of the risk event” as suggested by Mohamed and Robinson (2010).

17 4.2. Framework of the methodology

The methodology is made up of five steps: (1) Predefining stakes, (2) Identifying stakeholders, (3) Consulting stakeholders, (4) Analyzing and plotting results and (5) Identifying the material stakes.

Steps 3 and 4 can be split in several sub-steps as seen in Figure 5. The following descriptions of steps 1 and 2 do not aim at comprehensively exploring these topics but only at presenting them.

Figure 5: Methodology framework within the materiality analysis framework

4.3. Predefining stakes

The first step of the methodology involves creating a preliminary list of the stakes relevant to the organization’s activity. In accordance with the multidimensionality of materiality, all the sustainability topics that may cover the organization’s economic, environmental or social impact, or have an impact on the organization’s activity, or influence stakeholders’ assessments and decisions should be listed. To do so, several sources of information can be used:

- Internal documents of the organization

- International frameworks (ISO 26 000 standard, GRI standards, NFRD, SASB, UN Global Compact, etc.)

- Media review regarding the organization and its sector - Comparison to other organizations of the sector

More specifically, as suggested by Bellantuono et al. (2016), an organization can usually use a broad list of stakes provided by an international framework like the ISO 26 000 standard or the GRI

standards (see Table 1 and Appendix

complement it with other stakes that are specific to the organization.

18 4.4. Identifying stakeholders

The involvement of stakeholders is one of the core parts of CSR and the influence of sustainability topics on stakeholders’ assessments and decisions is one of the dimensions of the materiality analysis.

The organization must identify the stakeholders to interview so they can evaluate to which extent they are influenced by the preliminary identified topics. Since the stakeholders are not equally relevant, the organization can prioritize them. Several frameworks can be used: for example,

stakeholders can be distinguished between primary and secondary (Clarkson, 1995), or their salience can be assessed with three criteria, urgency, power and legitimacy (Mitchell et al., 1997). Moreover, a materiality analysis can be used as one of the first steps for stakeholder engagement. This process refers to the practices that a company uses to actively involve stakeholders in its activities (Friedman and Miles, 2006). For more information about stakeholder theory and engagement, see Freeman (2010) and Friedman and Miles (2006) and the AA1000 Stakeholder Engagement Standard (AccountAbility, 2018).

4.5. Consulting stakeholders

As discussed in section 1., three criteria have to be considered: risks, opportunities and the influence on assessments and decisions of stakeholders (summarized roughly as “Influence on stakeholders” in figures). The hierarchy is represented Figure 6.

Figure 6: AHP network of materiality analysis

The first step of the AHP is to set up a pairwise comparison matrix A. If m is the number of criteria considered, A is a m*m matrix. a

represents the importance of the jth criterion relative to the kth criterion. a

and a

satisfy the following constraint:

𝑎𝑗𝑘. 𝑎𝑘𝑗 = 1 (1)

The equation represents the fact that the importance of the jth criterion relative to the kth is the inverse of the importance of the kth criterion relative to the jth.

Of course, a

= 1, for all j.

The relative importance is measured according to a numerical scale from 1 to 9, the fundamental

scale from Saaty, 1980 (Table 5).

19

Intensity of importance

on an absolute scale Definition Explanation

1 Equal importance Two activities contribute equally to the objective

3 Moderate importance

of one over another

Experience and judgement slightly favor one activity over another

5 Essential or strong importance

Experience and judgement strongly favor one activity over another

7 Very strong

importance

An activity is strongly favored, and its dominance is demonstrated in practice 9

Extreme importance The evidence favoring one activity over another is of the highest possible order of affirmation

2, 4, 6, 8

Intermediate values between the two adjacent judegments

When compromise is needed

Then, the normalized matrix A

is computed as:

𝑎̅_𝑗𝑘= ^𝑎𝑗𝑘

∑^𝑚_𝑙=1𝑎_𝑙𝑘 (2)

The criteria weight vector w is built by averaging on each row of A

:

𝑚𝑙=1

𝑚 (3)

In the case of group decision-making, there are two ways to proceed: consensus vote and individual judgements (Saaty, 1989). If individual judgements are used, geometric mean is recommended in order to compute the group judgement (Saaty, 1989).

4.5.2. Assessing consistency of judgement

A comparison matrix A is said to be consistent if, for all i, j and k:

𝑎𝑖𝑗. 𝑎𝑗𝑘= 𝑎𝑖𝑘 (4)

In order to understand this notion of consistency, an example with three generic criteria A, B and C can be used. If B is evaluated 3 to 1 compared to A, and A is evaluated 5 to 1 compared to C, and if the judgement is perfectly consistent, B shall be evaluated as 15 to 1.

Saaty (1980) proved that a consistent matrix has its largest eigenvalue equal to the number of criteria:

𝜆𝑚𝑎𝑥 = 𝑚 (5)

As the method is based on human judgement, a Consistency Index (CI) is defined and compared to index based on randomly generated reciprocal matrix, the Random Consistency Index (RI).

𝐶𝐼 = ^{𝜆𝑚𝑎𝑥−𝑚}

𝑚−1 (6)

Using Table 6, the Consistency Ratio (CR) is computed as:

𝐶𝑅 =^𝐶𝐼

𝑅𝐼 (7)

20

m 1 2 3 4 5 6 7 8 9 10

RI 0 0 0.58 0.9 1.12 1.24 1.32 1.41 1.45 1.49

If the value of CR is small or equal to 10%, the consistency is considered as acceptable. Otherwise, the judgement has to be revised.

4.5.3. Interviewing stakeholders

Among the stakeholders, it is recommended that the top management of the organization will assess the criteria of risks and opportunities as they are the most knowledgeable to assess them accurately, whereas other stakeholders will assess the criterion of the influence of a topic on their assessments and decisions.

In order to gather these assessments, an interview is conducted with each stakeholder and scales are provided to assess these criteria (see Table 7 to Table 11). Scales are commonly used for risk

evaluation (ISO, 2018) and these scales were first created drawing from examples from other fields (ISO, 2019). Then, they were refined, in particular their wording, through the interviews of three current or former senior risk consultants. These risks consultants were identified and consulted as they worked in the CSR field.

The same probability scale is used for both risks and opportunities. The assessment of the third dimension of the FMEA, “control”, is optional and will depend on the availability of the interviewed people among the top management of the company. This assessment is a must-have if the aim of the materiality is also to elaborate the CSR strategy of the company: if a stake presents a high risk but a poor control, it will be prioritized.

Regarding the severity, the different categories aim to take into account the double definition of materiality previously discussed in section 1, the financial definition and the social, environmental and economic one. Stakeholders are asked to retain the highest degree of severity among the different categories. For example, if the severity of a stake as risk is 4 regarding financial matters and 2 regarding the environment, 4 is retained. Therefore, it can be crucial to gather additional remarks from the stakeholder in order to understand its choice and identify the relevant category.

From a practical perspective, a short presentation material is sent to each interviewee a few days

before the interview, with the presentation of the organization, the definition of the stakes and the

assessment scales. Then, the interviews are in-person or telephonic structured interviews based on a

short interview guide. After a few background questions about the interviewee (presentation of her

organization, profession, seniority, etc.), she is asked to assess all the stakes on the criteria. For

example, about the occurrence of a risk, the question is: “How probable/likely do you think this risk

is?”. Then, she uses the scales to give her assessments from the first stake to the last one. Other

questions asked for each criterion can be seen in Appendix 2.

21

Categories/Severity Limited Significant Major Critical

1 2 3 4

Financial Limited impact on the operating margin of the entity

Dispute with amicable resolution

Significant impact on the operating margin of the entity

Costs/penalties of a conviction by a civil or administrative court

Major impact on the operating margin of the entity

Costs/penalties of a criminal sanction

Critical impact on the operating margin of the entity

Costs/penalties of a criminal conviction of a company’s executive

Questioning of the sustainability of the entity Strategic/Operational No measurable impact on the company’s

business environment or strategy

Evolution of the business environment of the entity not related to a main activity

Necessary adaptation of a strategic operation of the company (external growth, new offer launch, etc.)

Major questioning of the company’s business environment on one of its main activities or missions

Need to significantly adapt a major strategic operation

Critical challenge to the company’s business environment on one of its main activities or missions.

Inability of the entity to carry out a major strategic operation

Reputation/Brand damage

No measurable impact on the company’s reputation.

Sporadic customer claims

Campaigns in local/regional media or on social networks

Degradation/settlement of one or more key indicators of the brand image barometer.

Conviction by a civil or administrative court

Recurring customer complaints

National media crisis

Strong degradation of one or more key indicators of the brand image barometer

Criminal convictions and penalties against the company or its employees

Sanction by the sector regulator

Local protest actions organized

Long-lasting and profound challenge (several years) of the company’s reputation on one of these three pillars: security/quality of service/social & societal

Major and lasting degradation of the brand image barometer.

National protest actions

Criminal conviction of the company’s executives

Environmental Risks to the environment outside sites controlled immediately

Risks to the environment outside sites controlled by sustained efforts

Risks to the environment outside sites controlled by using external assistance

Risks to the environment outside sites resulting in damaging and sustainable effects Human Rights Minor and isolated harm to the economic,

social and cultural needs of an individual

Proven harm on economic, social and cultural rights of one or more individuals

Proven and recurrent infringement on the civil and political rights of one or more individuals

Serious and repeated infringement on the civil and political rights of a group of individuals

Health & Safety (workers and customers)

Lights injuries causing no work stoppage

Local increase in frequency rates and/or absenteeism

Minor and reversible injuries causing a short work stoppage (less than 3 months)

Significant and sustained increase in frequency rates and/or absenteeism

Death or irreversible disabling injury causing a total inability to work

Death of several individuals

Local development No effect of activity on local communities Minor consequences on local communities Adverse but temporary consequences arising from the activity: health, attractiveness of the territory, loss of economic activity

Adverse and impacting long-term effects of the activity: health, attractiveness of the territory, loss of economic activity

22

Categories/Severity Limited Significant Major Critical

1 2 3 4

Financial Limited impact on the operating margin of the entity

Significant impact on the operating margin of the entity

Major impact on the operating margin of the entity

Critical impact on the operating margin of the entity

Strategic/Operational No measurable impact on the company’s business environment or strategy

Evolution of the business environment of the entity not related to a main activity

Possible improvement of a strategic operation of the company (external growth, new offer launch, etc.)

Major improvement of the company’s business environment on one of its main activities or missions

Critical improvement of the company’s business environment on one of its main activities or missions.

Reputation/Brand damage

No measurable impact on the company’s reputation.

Relay in local/regional media or on social networks

Improvement of one or more key indicators of the brand image barometer.

National media relay

Strong improvement of one or more key indicators of the brand image barometer.

Long-lasting and profound improvement (several years) of the company’s reputation on one of these three pillars: security/quality of service/social & societal

Major and lasting improvement of the brand image barometer.

Environmental Minor decrease of environmental impacts Significant decrease of environmental impacts in the long term

Major decrease of environmental impacts in the medium or long term

Creation of positive impacts

Major decrease of environmental impacts in the short term

Creation of positive impacts in the short term Human Rights Minor improvement regarding the respect of

human rights

Improvement regarding the respect of human rights in the short term

Major improvement regarding the respect of human rights in the geographic area of activity

Lasting improvement regarding the respect of human rights in the value chain

Health & Safety (workers and customers)

Minor improvement in health & safety of workers and customers

Improvement in health & safety of workers and customers

Major improvement in health & safety of workers and customers

Lasting improvement in health & safety of workers and customers

Local development No effect of activity on local communities Minor or geographically limited consequences on local communities

Short-term development of local activity Long-term development of local activity

23

Improbable Rare Possible Certain

1 2 3 4

Probability/Likelihood Very difficult to imagine that this event could happen.

Less than once year.

It would be surprising if this event were to happen

At least once a year, low-recurring event

It would not be surprising if this event were to happen

At least once a month, recurring event

It is almost certain that this event will occur

At least once a week, current and recognized event or practice

Table 10: Scale of risk control

High Significant Medium Low

1 2 3 4

Risk control The risk is completely controlled within the process or by a device integrated into the IT system and the associated internal control Is frequently audited.

The actors are in place and the responsibilities are clearly defined.

Internal control system (process, roles and responsibilities) in relation to the risk are effective, formalized and known by all. It could marginally be improved.

Internal control system (processes, roles and responsibilities) in relation to the risk are partially described, ineffective or little known.

Internal control system (processes, roles and responsibilities) in relation to the risk are non-existent or obsolete

Table 11: Scale of influence on assessments and decisions of stakeholders.

Limited Significant Major Critical

1 2 3 4

Influence on assessments and decisions of

stakeholders

Not relevant from the stakeholder’s

perspective or does not have an impact, trust maintained.

Moderate impact on the relationship with the company, nonetheless altering negatively (risk) or positively (opportunity) stakeholder’s opinion of the company.

Risk: strong impact on the relationship with the company. If no improvement is seen, the relationship will be questioned in the medium term.

Opportunity: strong improvement of the relationship with the company. Willingness to support company initiatives, to collaborate closely or to speak positively about it

Risk: impact so severe it would cause a reaction. Immediate breakdown of the relationship, absolute breach of trust or in terms of collaboration with the company, strong opposition, etc.

Opportunity: impact so positive that a collaboration/partnership with the company represents a real opportunity. The company becomes a partner of choice.

24 4.6. Analyzing and plotting results

4.6.1. Plotting results

Following the interviews, data is aggregated through the use of arithmetic mean and risk and opportunity are computed as the addition of severity and probability as suggested by Solomon et al.

(2017), then divided by 2 in order to stay within a scale of 1 to 4.

Among the possible plot of data, three are most relevant in a NFRD perspective: risk severity vs. risk probability or risk vs. influence on stakeholders as they can already enable to identify the risks to report more specifically, and also opportunity vs. influence on stakeholders as the most material of these stakes must also be reported.

4.6.2. Calculating the unique value

In order to compute a unique value for each stake, a score matrix S is defined as S

being the score of the ith stake regarding the jth criterion. S is therefore a n*m matrix.

The unique value is given by:

𝑣 = 𝑆. 𝑤 (8)

4.6.3. Optional: setting a threshold

A method based on a global score of 3 for all criteria is suggested in order to identify a specific threshold and therefore the material stakes. Nevertheless, it is important to underline that this decision ultimately depends on the company’s strategy and aims and can hardly be boiled down to a division in two of the list of stakes. Such determination requires also to focus on qualitative analysis (Hsu et al., 2013).

A common practice is analyzing the values in Pareto fashion by choosing the “Top “X” issues” of the list. The X-value is a random choice: it could be 5, 10 or 15. This makes the decision-making

problematic (Bluvband and Grabov, 2009). A suggested solution (Bluvband and Grabov, 2009) is to compare the unique value to a hypothetical stake scored as 3 for all criteria, therefore considered as a “major” risk or opportunity.

Therefore, the threshold could be defined as:

𝑡 = [3|3|3]. 𝑤 (9)

4.7. Identifying material stakes

Eventually, through the ranking of the stakes and the definition of a threshold, the organization can

identify its material stakes.

25 4.8. Application to a company

4.8.1. Presentation of the company

The method was applied to a food processing company operating in more than a dozen countries and employing several thousand workers. With the approval of the two CSR managers, a list of stakes was created and refined. Then, interviews were conducted with employees acknowledged as “experts” of their area and with external stakeholders, in person when possible and otherwise by telephone. This company was not specifically chosen but the opportunity to conduct this materiality analysis

presented itself to the author of this report.

It was decided not to take in account the salience of stakeholders and not to assess the “control”

criteria, for reasons of simplicity.

4.8.2. List of stakes

Using the sources of information in 3.2, as well as the OECD/FAO document on “Guidance for Responsible Agricultural Supply Chains” (OCDE/FAO, 2016), a list of stakes was identified for the company, organized in four categories: governance (grey), environment (green), societal (yellow) and social (red) (Table 12).

Table 12: List of identified stakes for the company

1 Accountability / Transparency

Risk management and action in response to concerns (of employees or collaborating

organizations), confidential and protective alert mechanism for the whistleblower in the event of an incident. Transparency on dysfunctions and on the management of the activities, and on the remuneration of managers.

2 Compliance Compliance to legislations in the countries of commercial activity.

3 Water pollution /

Waste waters Treatment of wastewater and decrease of substance from water discharge (pesticides).

4 Waste

management Production and sorting of waste, recycling, reuse, etc.

5 Noise, air and soil pollution

Noise and odor pollution, air and soil pollution, in particular linked to the use of pesticides, and any other form of pollution specific to the company's industrial and agricultural activity.

6 Water consumption, water supply according to local constraints

Quantity of water consumed from an industrial and agricultural point of view, including its availability, and the needs of the populations in a given territory. Water recycling, in particular by reintroducing water used in the agricultural production process (fertilization, irrigation) and processing.

7

Raw materials consumption, use efficiency/ Food waste / Circular economy

Consumption of raw materials and their efficient use¹

26

8

Energy consumption, energetic efficiency and renewable energy

Management of energy consumption required for buildings, transport, raw materials processing and other activities at industrial sites. Anticipation of energy trends.

9 Land use

Agricultural yields through sustainable agricultural practices (R&D on precision agriculture, yield, alternative methods to plant protection products, interest in organic farming, control of soil impoverishment and erosion). Impact on habitat, water, ecosystems, and soils.

10

Contribution to global warming (carbon footprint)

Emissions of greenhouse gases (GHGs) such as carbon dioxide, methane and nitrous oxide, linked to climate change in the activities and those of the suppliers

11 Climate change adaptation

Vulnerability of the company in anticipation of climate change: identifying and integrating climate change adaptation into decision-making, avoiding or limiting damage as much as possible, implementing measures to address existing or anticipated impacts.

12 Biodiversity development

Impact of activities on biodiversity and rehabilitation of degraded or destroyed ecosystems as a result of the company's activities (deforestation, intensive agriculture)

13

Local footprint/

development of local

communities

Impact of activities on the neighborhood and relationship with local communities,

employment opportunities for locals and integration of young people and people away from employment.

14 Co-Innovation and partnerships

Engagement of stakeholders interested in the company's activity in finding solutions to issues of common interest, working with research laboratories or universities, co-development with hubs of activity, etc.

15

Agricultural products supply (including suppliers, agricultural practices, partnerships, supply securization)

Agricultural practices and environmental performance of cooperators and suppliers. Quality of the relationship with the agricultural world, and securing of agricultural supplies.

16

Food safety (including traceability)

Food safety, quality and durability. Traceability of agricultural raw materials from field to factory in response to end consumer expectations.

17

Health and nutrition (products and health education impacts)

Public health issues (diabetes and obesity) and stakeholder expectations, taking into account tomorrow's nutritional needs and demands for certified, balanced and healthy products.

Consideration of the risks associated with the consumption of foods with GMOs (toxicity and allergies linked to the presence of the inserted gene; development of antibiotic resistance;

reduction in the nutritional value of certain foods).

18 Food security Availability, access and stability of food supply.

27

19

Innovation and adaptation to consumption patterns (clients and customers)

Development of innovative products and solutions to meet tomorrow's nutritional needs.

Anticipating market developments and food trends.

20 Corruption

Practices of corruption and extortion and conflicts of interest in our activities, among the subcontractors and in any other entity with which commercial or political/administrative relations has been established.

21 Marketing and communication

Responsible marketing and communication practices throughout the product portfolio:

reliability of marketing messages regarding nutrition/health and the origin of raw materials.

22 Products labelling Reliable and clear information to consumers about the list of ingredients and nutritional information on packaging.

23 Cyber security / Data protection

Management of strategic information for the company, personal data of employees and customers, attacks (intrusion attempts, viruses, unsolicited e-mails, etc.). Insider trading.

24 Diversity and discrimination

Discriminatory practices in employment and occupation, in particular on the grounds of sex, disability, family situation, sexual orientation, age, political opinions, religious beliefs, trade union activity, racial, social, cultural or national origin. Promotion of the diversity of profiles.

Promoting women's access to managerial and executive positions and equal pay.

25 Living wages

Compliance of wages and other forms of remuneration with national legislation, regulations or collective agreements, and at least adapted to the needs of workers and their families. Taking into account the general level of wages in the country, the cost of living and social security benefits in wage setting, negotiated with workers or their representatives.

26 Working conditions

Impact of the activity on well-being at work and on the working environment, working hours, rest and holiday periods, work/life balance. Practices in corporate discipline and social protection. Effects of income reduction in the event of work accident, illness, maternity, paternity, ageing or incapacity.

27

Social dialog (information, consultation and negotiations with workers and trade unions)

Negotiation, consultation and exchange of information between representatives of governments, employers and workers on matters of common interest. Elections of workers' representatives by the members of their trade union or by the relevant workers.

28 Workers’ health and safety

Safety of employees and subcontractors in the workplace (agricultural and production sites), protection of physical health, including exposure to phytosanitary products, and mental health.

29 Human capital

development Employee career management, individual development, marketability and internal promotion

30 Attractivity to

talents Retention of talent to enable continuous improvement, transmission of knowledge and skills.