Aligning R&D and Sustainability: The Power of Materiality Analysis

A common story

As I sat at my desk, my computer chimed with an incoming video call. It was Sarah, the Chief Sustainability Officer of a large multinational corporation. She had scheduled this meeting urgently, and I could tell from her expression on the screen that she was frustrated.

"Hi Alberto, thanks for making time to talk," she began, her voice carrying a hint of exhaustion. "I'm struggling to align our sustainability goals with the R&D department, and it's becoming a significant issue."

I adjusted my headset and focused on her. "Tell me more about what's going on, Sarah."

She sighed deeply. "Our sustainability initiatives are crucial for the company's long-term health and our public image. But the R&D team seems to have a different set of priorities. For example, they recently developed a new product using materials that are cheap and efficient, but far from sustainable. When I suggested we look into eco-friendly alternatives, they pushed back, saying it would increase costs and delay the launch."

I nodded, understanding the tension. "It sounds like a classic conflict of priorities. R&D is often under pressure to innovate quickly and cost-effectively, while sustainability looks at the long-term impact."

"Exactly," Sarah agreed, her frustration evident. "We also face issues with resource allocation. Whenever there's a budget discussion, R&D projects get the lion's share. My team struggles to secure funding for crucial sustainability projects, like improving our waste management systems or developing greener supply chains."

I could see the weight of the issue bearing down on her. I leaned back in my chair, considering her words. "It sounds like you need a strategic approach to bridge these gaps.”

“But HOW??” said Sarah.

Building the bridge

The first step is to detect the points of connection that exist between R&D and Corporate Sustainability, considering their main needs and goals.

Two legs of the same body

The primary need of a business's Corporate Sustainability team is to integrate environmentally and socially responsible practices into the company's operations, ensuring long-term viability and positive impact.

At the same time, the main goal of a business's R&D team is to drive innovation that propels the company ahead in the market. This team seeks to identify and capitalize on opportunities for technological advancements, product development, and process optimization.

?If we analyze these objectives, we will realize that there is a common thread.

• The WHY : It is the job of corporate sustainability to define what ESG risks, opportunities or impacts are involved with the business and its value chain, and to define the direction to take to mitigate the risks and maximize the opportunities of the company's products and services.
• The HOW: The knowledge to develop new products and services is found in the R&D department. It is here that the positive impact that the Sustainability department wishes to generate through innovation can materialize.

Different people, common circumstances

The connection between both departments is more than operational. Both face, due to their own casuistry, some particularities that are not found in the rest of the business areas.

Long-Term Strategic Focus.

The vision and focus of both areas is the construction of long-term value, either through the development of new services and products or through practices that generate improvements in intangible value and engagement with stakeholders.

The first customer is the Internal Customer.

Since both are enablers of other areas of the organization, most of the initiatives of both departments must be bought by an internal customer, who must be seduced.

The implementer is a different one.

Not only do they need to seduce the internal customer, but in most cases, they will also be responsible for executing the implementation in the business. This makes the task of the Sustainability and R&D teams even more complex.

Risk Identification and Mitigation.

Both teams play a role in risk management. R&D teams assess technical and market risks associated with new innovations, while Sustainability teams evaluate and manage risks related to environmental, social, and governance (ESG) factors. These risks are often closely connected.

In conclusion, both functions are strongly connected for operational and casuistic reasons. Starting from this nexus, the next question is: How to bring the two areas together?

Materiality Analysis: the source of all

The rules of sustainable management are different depending on the region we are in, but there is a fundamental piece that applies everywhere: the materiality analysis.

All sustainability departments perform at some point an analysis of the material aspects that can affect the business based on the context, the business model and the expectations of stakeholders.

This analysis is performed differently in different regions of the world (there are materiality matrices focused on impact, risk, finance, etc.). In the European Union, the reference model is the double materiality analysis, a process by which the strategic priorities of the business are defined based on the relevance of different topics from a financial (from the environment to the company) and impact (from the company to the environment) point of view.

So what?

Your Materiality Analysis

The preparation of your analysis is a golden opportunity to align the interests of the organization, particularly those of the R&D department. The R&D leader should be involved in the process from the very beginning, receiving insights at each stage and providing input to co-create the sustainability strategy.

By ensuring the team leader's involvement from the start, you will achieve a dual benefit:

• Gain a better long-term industry perspective: The R&D department is a rich source of information about market needs. Often, R&D co-designs and innovates with the most important accounts in the business. They know what your customers demand from your products, and the direction in which the industry is moving.
• Broaden the department's perspective: A materiality analysis has a wider scope than what is typically covered by the department. It integrates various stakeholders (employees, local communities, investors, etc.) and topics (impact generation, diversity, ethics, etc.). By participating in the process, the R&D team will better understand the reasons behind the actions being taken. Understanding is the foundation for collaboration.

Your customers’ Materiality Analysis

Ensuring the company's ability to capture future trends and adapt its products and services accordingly is a key part of the R&D team's remit.

Double materiality analysis is (or will be) published in the reports of major accounts with which the company already works or would like to work. How does this information benefit our business?

Managing future risks, opportunities, and impacts requires your customers to find new solutions. In other words, your client's materiality analysis indicates what they need help with and why.

The sustainability department has the knowledge to translate this information so that the R&D team can do its job, and is also able to establish an additional bridge to the customer through the sustainability counterpart.

Together, you can interpret these insights, identify the challenges your clients face, drive innovation, and even build a compelling narrative: this is your challenge, and this is my solution for you.

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Back on track

Sarah's eyes lit up with a glimmer of hope. "That's a good idea, Alberto. If we can show them that sustainable practices can also drive innovation and even create new market opportunities, we might find common ground."

I smiled, glad to see her more optimistic. "Exactly. Collaboration and communication are key."

She nodded, already thinking ahead. "I'll give it a try. Thanks, Alberto. Talking it out has given me some new perspectives to consider."

As we ended the call, Sarah looked more determined, ready to tackle the challenges ahead. I felt confident that with the right approach, she could foster a more collaborative relationship between sustainability and R&D, benefiting the company as a whole.