Materiality Assessments – what they are and how to conduct them

Materiality assessments play a crucial role in corporate sustainability and reporting. But what exactly are they? And how should you go about conducting one for your company? 

In today's sustainability reporting landscape, there is a growing expectation for organizations to engage with stakeholders and conduct thorough materiality assessments to identify the most relevant ESG issues. By using an appropriate methodology and visual representation, companies can effectively prioritize issues, ensuring that their sustainability efforts align with the expectations and needs of their stakeholders. In this blog post, we will delve into the significance of materiality assessments, their role in stakeholder engagement, and provide guidance on conducting and documenting them in a meaningful and effective manner.

Understanding materiality

Materiality refers to the importance and relevance of an issue or impact within the context of an organization's operations and its stakeholders. In recent years, the concept of double materiality has gained prominence in sustainability reporting. Double materiality recognizes the interdependence of financial materiality (the impact of ESG factors on an organization's financial performance) and ESG materiality (the impact of an organization's activities on the environment, society, and governance). 

Which climate related disclosures require a materiality assessment? 

Several climate-related legislations and standards can assist organizations in conducting an effective materiality assessment that is relevant to addressing climate change challenges. Here are a few notable ones:

Task Force on Climate-related Financial Disclosures (TCFD)

The TCFD framework provides guidance on how organizations can disclose climate-related risks and opportunities in their financial filings. By aligning materiality assessments with TCFD recommendations, companies can identify and disclose climate-related risks and material issues that may have financial implications. This helps investors and stakeholders make informed decisions and encourages organizations to integrate climate considerations into their business strategies.

The Global Reporting Initiative (GRI)

According to the GRI 'material' topics are 'those topics that have a direct or indirect impact on an organisation's ability to create, preserve or erode economic, environmental and social value for itself, individual stakeholders, and society at large.'

The GRI provides guidelines and indicators to assist organizations in conducting a comprehensive materiality assessment and integrating it into their reporting frameworks, helping to align their sustainability efforts with stakeholder expectations and inform strategic planning for business success.

Science-Based Targets (SBTs)

The Science-Based Targets initiative helps companies set greenhouse gas (GHG) emission reduction targets in line with climate science. A materiality assessment aligned with SBTs enables organizations to identify climate-related risks and opportunities, set ambitious emission reduction goals, and align their actions with the goals of the Paris Agreement. This ensures that corporate strategies are in line with the urgent need to limit global warming to well below 2 degrees Celsius.

Carbon Disclosure Project (CDP)

CDP is a widely recognized platform that enables companies to disclose their environmental impact, including climate-related risks and opportunities. By incorporating CDP's guidance and reporting framework into materiality assessments, organizations can effectively evaluate their carbon footprint, water usage, deforestation risks, and other environmental factors. This allows companies to prioritize actions and engage with stakeholders more transparently.

A materiality assessment vs a materiality matrix

A materiality assessment and a materiality matrix are related concepts but serve different purposes in the context of sustainability reporting. A materiality assessment is a comprehensive process that involves identifying and prioritizing the environmental, social, and governance (ESG) issues that are most significant to an organization and its stakeholders. It involves engaging with stakeholders, gathering insights, and evaluating the impacts and risks associated with various topics. The goal of a materiality assessment is to determine which topics should be included in the organization's sustainability reporting and disclosure, based on their relevance and significance. 

On the other hand, a materiality matrix is a visual representation of the results of a materiality assessment. It typically takes the form of a two-dimensional matrix that plots the significance or importance of ESG topics on one axis and the level of stakeholder concern or interest on the other axis. The matrix helps visualize the relative importance of different topics and enables organizations to prioritize their reporting efforts accordingly. By categorizing the topics based on their materiality, the matrix provides a clear snapshot of the issues that require attention and focus.

The materiality assessment process 

Conducting a materiality assessment involves identifying ESG issues that can affect an organization's ability to create value, manage risks, and meet the expectations of its stakeholders. These assessments help companies focus their sustainability efforts on areas that matter most, enabling them to allocate resources efficiently and drive positive change.

To write a comprehensive and effective ESG materiality assessment, you should consider the following steps:

1. Identifying and engaging stakeholders

• Begin the materiality process by compiling a list of internal and external stakeholders who can provide diverse perspectives on your sustainability strategy, including executives, directors, regional managers, employees, trade associations, key customers, and NGOs.

• Ensure a comprehensive evaluation of perspectives across the value chain, allowing for a holistic understanding of sustainability issues.

2. Conducting initial stakeholder outreach

• Initiate early communication with individual stakeholder groups, clearly expressing the value of their insights and how their participation will shape your sustainability strategy and practices.

• Keep the outreach concise while conveying the importance of their unique perspectives.

3. Determining relevant sustainability indicators

• Categorize sustainability indicators into economic, social, and environmental factors.

• Utilize existing data, stakeholder insights, media research, and resources such as GRI, SASB, and CSR Europe to identify the most relevant indicators for your business.

4. Designing a comprehensive materiality survey

• Structure the materiality assessment as a formal survey to ensure reliable and quantifiable results.

• Incorporate a numerical rating scale for stakeholders to assess the importance and impact of each identified indicator.

• Provide space for written insights and comments to enhance the richness of the responses.

• Consider utilizing software or surveying tools like Survey Monkey, Typeform, or Google Forms for streamlined data collection and analysis.

5. Launching the survey and collect insights

• Share the survey link and deadline with stakeholders, expressing gratitude for their participation and offering support for any questions.

• Send reminders to those who have not completed the survey as the deadline approaches.

6. Analyzing and synthesizing survey responses

• Review the collective results, aggregating rankings based on the reviewed indicators and different stakeholder groups.

• Pay attention to specific comments as they often provide valuable insights.

• Analyze insights individually for each stakeholder group and identify commonalities.

• Create visual representations, such as graphs, to map trends and observations.

• Develop a formal matrix graph that illustrates the significance of each indicator relative to stakeholder influence.

7. Translating insights into action

• Share the materiality assessment results and insights through a formal sustainability report, on the company website and in media releases.

• Encourage feedback from stakeholders to maintain engagement and continue the conversation.

• Incorporate the findings into your overall sustainability strategy and develop tailored communication plans for each stakeholder group.

• Use the materiality assessment as a foundation for your ESG strategy development, driving meaningful reporting and guiding future sustainability initiatives.

Conducting a thorough materiality assessment may require effort and resources, but its value lies in gathering insights that inform a company's sustainability strategy and enable effective reporting. It also serves as a crucial step towards developing a comprehensive ESG strategy.

To summarize

A successful materiality assessment can serve as a compass for organizations navigating the complex landscape of sustainability and ESG issues. By conducting thorough assessments and aligning them with relevant climate legislations and standards, companies can identify and address the most significant ESG challenges, enhance stakeholder trust, and drive positive environmental and social impact. Importantly, such an analysis also helps them to identify and prioritize significant ESG issues, meet the sustainability reporting expectations of internal and external stakeholders and help guide strategy.