A Materiality Assessment is a tool that help companies identify, evaluate, and prioritize the most significant environmental, social, and governance (ESG) issues that impact their business and stakeholders. In essence, it helps them distinguish between what is “material” (meaningful and impactful) and what is not in the context of their operations. This analysis is the basis for developing an ESG strategy.
In today’s world, individuals are increasingly concerned about how brands address climate change and sustainability challenges. This is where prioritizing critical points becomes invaluable improving the decision-making process and the selection of issues to disclose in a report.
Companies have the flexibility to decide how they approach ESG reporting which can involve adhering to various standards and deciding whether to enlist external consultants or manage the process internally. Opting the first option usually gives the company more credibility, as it ensures that “the company is not simply listing its well-managed issues as the most material”. (Center for Sustainable Business, 2019)
Although there is no fits-all formula to conduct the process, there are some common steps:
1. Identify the key issues and decide which ones belong to each stakeholder group (community, investors, NGOs, etc.)
2. Collect the data to determine the impact of each issue and rank them by their relevance.
3. Create a materiality matrix to visualize and evaluate the data
4. Align the results with key management and strategy development to know which issue is critical and how to attach the goal
5. Report annual results to keep metrics on track
Through this process, companies can begin to meet the demands of their stakeholders, enhance their reputation as a socially responsible company, attract investors, and rebuild trust.
Ready to embark on your company’s ESG journey, contact us! At Set the World, we help our clients to generate a Materiality Assessment by studying the impacts, expectations and economic, environmental, and social risks that could impact your company’s value chain.
- Center for Sustainable Business (May, 2019). Sustainability Materiality Matrices Explained. NYU. https://www.stern.nyu.edu/sites/default/files/assets/documents/NYUSternCSBSustainabilityMateriality_2019_0.pdf
- Garst J., Mass K. & Suijs J. (November, 2022). Materiality Assessment Is an Art, Not a Science: Selecting ESG Topics for Sustainability Reports. California Management Review. Volume 65. Issue 1. Pages 5 – 170. https://journals.sagepub.com/doi/epub/10.1177/00081256221120692
- Insana A. (March, 2022). What are Materiality Analysis and Materiality Matrices and Why are they important for ESG? https://www.linkedin.com/pulse/what-materiality-analysis-matrices-why-important-esg-antonio-insana/
- The GRI Perspective. (February, 2022). The materiality madness: why definitions matter. GRI. https://www.globalreporting.org/media/r2oojx53/gri-perspective-the-materiality-madness.pdf