Materiality Assessment
A materiality assessment is the process of identifying which specific environmental, social and governance (ESG) topics matter most to an organisation’s internal and external stakeholders. The assessment can form the basis of an organisation’s ESG strategy and helps prioritise the information reported to stakeholders to better meet their expectations. It is an important process to ensure that you are focusing and communicating on the right sustainability topics. It also contributes to the analysis of risk factors and the identification of the measures to address them.
Materiality focus in reporting frameworks
Organisations are increasingly looking to strengthen their materiality assessment processes due to a growing focus on materiality in reporting frameworks, including:
Global Reporting Initiative’s (GRI) G4 guidelines
International Integrated Reporting <IR> Framework
Sustainability Accounting Standards Board (SASB)]
Conducting your Materiality Assessment
Define the objectives of your materiality assessment: Why are you conducting a materiality assessment, who is it for, and how will it be used? Start the materiality process by making your objectives and audiences clear.
Identify internal and external stakeholders: Explore with which stakeholders you want to engage, both internally (e.g. directors, employees) and externally (e.g. clients, investors, suppliers). Try to obtain a wide range of perspectives, whilst focussing on the stakeholders that have the most impact on your company.
Identify materiality topics: Create a list of topics that you wish to assess in terms of importance to your stakeholders. Consider topics that are applicable to all organisations (e.g., reducing carbon emissions) as well as those that may be specific to your organisation or sector. Group your topics according to a number of high-level categories and make sure every topic is described clearly and easily understood.
Collect and analyse data: Gather information on the importance of each topic to your stakeholders. This is best done in a survey, where you ask stakeholders to rate each material topic on a standard scale. To increase engagement, make sure stakeholders understand why their views are important and explain how the data will be used. Assess also how critical each topic is for the business in terms of current and future risks and opportunities.
Put your insights into action: Based on your results, prioritise the topics that you have found to be material to your organisation. Share findings with your stakeholders and obtain their feedback. Finally, consider how you may integrate results into your business strategy, operations and reporting.
Example of a Materiality Assessment output
Best practice for assessment:
Involve senior management to obtain support for the process and outcomes
Integrate your materiality assessment process into wider risk management processes
Ensure that your materiality topics are exhaustive, covering all topics of importance to your organisation
Define your materiality topics to be easily understood, and specific enough to reduce overlap between topics
Develop a simple yet robust method for prioritising topics