Materiality Matters

Human Rights and Community Development as Material Issues for Companies 

July 10, 2024

Welcome to Climate Money Work, a weekly newsletter that connects revenue generation with sustainable business solutions. Discover how companies worldwide are showcasing innovative practices, creating value from sustainability, increasing revenue, and improving customer experiences. Send questions, feedback, and pitches to [email protected], or just hit reply. Meantime, enjoy our inaugural content around materiality in sustainability reporting called “Materiality Matters.”

Materiality Matters: Human Rights and Community Development as Material Issues for Companies 

As we delve into sustainability reporting season, it’s essential to focus on materiality issues that significantly impact businesses. Human rights and community development are critical areas where companies can make substantial contributions while also securing their social license to operate. 

Understanding Materiality in Human Rights and Community Development 

Materiality in sustainability reporting involves identifying issues that can significantly affect a company's performance and stakeholder decisions. Human rights and community development are increasingly recognized as material issues because they directly influence a company's reputation, costs, operational efficiency, and long-term sustainability. 

Human Rights: A Fundamental Responsibility 

Human rights encompass a wide range of issues, including fair labor practices, non-discrimination, and the right to a safe and healthy work environment. Companies are expected to uphold these rights not only within their operations but also across their supply chains. Failing to do so can result in severe reputational damage, legal repercussions, and financial losses. 

Community Development: Building Strong Relationships 

Community development refers to the initiatives companies undertake to support the economic, social, and environmental well-being of the communities in which they operate. This can include creating jobs, investing in local infrastructure, supporting education and healthcare, and fostering local businesses. Strong community relations can enhance a company's reputation, facilitate smoother operations, and help attract and retain talent. 

Case Study: The Casino Industry 

To illustrate, let's revisit the casino industry, previously labeled as a "sin stock" by some. Tracy S. Harris, Independent Director at Bally’s Corporation, provides an insightful example that counters this notion. Bally’s casinos are located in areas with significant disinvestment. By establishing casinos in these regions, Bally’s has created jobs, provided safe recreational spaces, and partnered with local governments to enhance community safety. Their upcoming Chicago casino project is expected to bring significant economic benefits to the community, including 24/7 job opportunities and increased local business revenue.  

Broader Implications for All Industries 

While the casino industry provides a specific example, the principles of human rights and community development apply broadly across all sectors. Businesses that invest in their communities and respect human rights can enjoy several benefits: 

  1. Attracting and Retaining Talent: Employees prefer to work for companies that are committed to ethical practices and positive community impact. This can reduce turnover rates and enhance employee morale and productivity. 

  1. Cost Reduction: When companies don’t comply with local laws or face litigation by communities where they’re doing business, lawsuit payouts can follow. Additionally, when employees question the reputation of their employer in the community, this can result in high turnover, which brings additional hiring and onboarding costs. 

  1. Enhanced Reputation and Brand Loyalty: Companies known for ethical practices and community involvement attract customers and investors who prioritize corporate social responsibility (CSR). 

  1. Operational Efficiency and Risk Management: Engaging with community stakeholders helps identify and mitigate potential conflicts, ensuring smoother project execution and compliance with local regulations. 

  1. Stakeholder Confidence: ESG criteria are increasingly important to investors, ESG ratings agencies and other stakeholders. Companies that demonstrate strong performance in human rights and community development are more likely to attract investment and receive positive feedback from other stakeholders. 

Best Practices for Companies 

To effectively address human rights and community development, companies should: 

  • Conduct thorough human rights impact assessments to identify and mitigate risks, and engage suppliers to do the same. 

  • Develop comprehensive community engagement strategies that involve local stakeholders in decision-making processes. 

  • Invest in community development projects that align with local needs and company capabilities. 

  • Regularly report on progress and outcomes to maintain transparency and accountability. Remember, whether you’re developing a sustainabilty report or on an investor call, sharing your company’s journey includes sharing the challenges and how you plan to meet those challenges. 

Conclusion 

Human rights and community development are essential material issues that can significantly influence a company's success. By prioritizing these areas, companies can enhance their reputation, secure their social license to operate, and achieve sustainable growth. As we continue to explore materiality in sustainability reporting, it’s clear that the human side of business is not just a moral imperative but a strategic advantage. 

For Our Interview with Tracy S Harris:

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