Novartis: integrating corporate responsibility into core business through materiality (English only)

At Novartis we believe that a materiality assessment done in the right way can be used as a strategic management tool, not only for the corporate responsibility (CR) department, but for all departments dealing with key global topics. A systematic and evidence-based assessment, which considers diverse stakeholder views, can identify CR issues material to the company and provide valid and reliable data on the specific nature, enablers and obstacles of these particular topics.

This is why Novartis is committed to continually improving its materiality assessment methodology. Standard approaches to materiality assessments often strongly rely on quantitative findings resulting from materiality questionnaires, and therefore treat topics individually. The assessment also primarily focuses on the current situation and is therefore primed from a backward looking perspective. This type of approach only provides limited data to inform business strategies. As an example, while a traditional materiality assessment can provide limited insights into what human rights might mean for the current business, it generally contains little useful information about the relevance of human rights on the business in the future.

From the start of our first materiality cycle in 2006, we have focused on generating qualitative feedback that helps to put quantitative results into context. In 2017, the methodology of the Novartis materiality assessment was further adapted to include more elements that would produce results directly relevant to business and strategy. One of the challenges facing decision makers in interpreting the results for the pharmaceutical industry is exploring the correlations between material topics, many of which are interconnected. For instance, will climate change affect human health or the availability of resources? Does the price of pharmaceutical products impact innovation? What about changes in health systems? To address these, we conducted a correlation analysis to explore this interconnectivity and make it visible in a meaningful way.

But executives at Novartis are faced not only with a high interconnectivity of complex material issues, but also with making assumptions on how these material issues will develop and how the ecosystem will adapt in the future is another challenge. Our 2017 materiality cycle therefore contained a qualitative scenario analysis. This forward-looking element creates a new level of support for managers working with the results of the materiality assessment.

With the completion of this 2017 assessment, we have conducted three full materiality cycles.
A key learning is that, if done right, a materiality assessment can develop into much more than simply a reporting tool.

We are continuously looking for ways to integrate these findings into both corporate responsibility and functional business strategies, our commitments and target setting, in governance structures and discussions on resource allocations. Beyond this, CR materiality is gaining strategic traction in various circles from a reporting perspective. While in the past, national security and exchange commissions only considered topics directly affecting financial performance such as market growth, supply chain challenges, and regulatory changes as material for reporting, this view is shifting. Several movements are forming to broaden the spectrum of topics needing to be screened for potential financial implications. As an example, the Financial Stability Board now considers climate change a focal point for investors and has initiated a Task Force on Climate-related Financial Disclosures.

In addition, society today expects corporations to engage in sometimes controversial discourses and find ways to align with the expectations of key stakeholders – including employees, nongovernmental organizations, academia, health care providers, financial market participants, governmental and economic stakeholders. As a neutral engagement platform, which is outside of the day-to-day engagement, materiality assessments can uncover stakeholders’ perception of a company’s performance and outline expectations.

In the end, if assessments are conducted in a standardized manner over time, the engagement with stakeholders might even reveal changing expectations such as relevant interrelations among key stakeholders. This can strongly support a thorough and deep understanding of a company’s material topics, which could enable companies to better address stakeholder concerns, exchange constructively on dilemmas and, in the end, better manage the business.

This approach is welcomed by stakeholders. We received overwhelmingly positive feedback from the various people we interviewed and interacted with as part of this assessment, each of whom invested considerable time to provide feedback. However, this also leads to increased expectations to demonstrate how Novartis plans to put these results into action. It is now up to us to make sure we clearly show how the input is being leveraged both internally and externally, and which activities have been started.

 

About the author

 

Denise Weger works in the CR strategy department of Novartis as a manager for strategic initiatives such as the materiality assessment. Before joining the CR strategy team she worked in CR reporting. Denise holds a Bachelor and a Master of Arts in International Affairs and Governance from the University of St. Gallen.