5 steps to executing a materiality assessment

With sustainability and corporate responsibility becoming priority concerns for businesses, understanding material concerns across the value chain is becoming key.

The term "materiality" in the ESG context refers to sustainability issues that are most relevant to a company's value chain and its stakeholders.

Identifying these pivotal points can help organisations prioritise initiatives, allocate resources effectively, and foster resilience against potential risks.

Here's a guide to executing a materiality assessment in five concise steps:

1. Identify and Engage Stakeholders

Before you can decide which ESG risks are material to your business, you must first understand your stakeholders.

Stakeholders provide invaluable insights into a company's ESG priorities, encompassing both financial and broader societal viewpoints, which are central to double materiality.

Stakeholders include investors, customers, employees, regulators, local communities, and non-governmental organisations (NGOs).

• Internal Stakeholders: include board members, employees at different hierarchical levels, and management teams. These individuals often have a direct understanding of the company's internal operations and strategic direction.
• External Stakeholders: encompass customers, investors, peer companies, local communities, and industry experts. These groups provide an external viewpoint, often spotlighting broader societal and industry-specific concerns.

Before diving deep into the assessment, gauge the general sentiments and priorities of stakeholders. This can guide the direction of the formal materiality survey.

Develop a communication strategy tailored to your audience. Different stakeholders might prefer different communication channels.

2. Design your Materiality Survey

List potential issues relevant to your industry and business operations.

Material topics are often categorised according to ESG parameters (eg. Environmental, Social, Governance issues), sometimes with the addition of economic indicators.

Some common sources to help you identify these issues include:

• Industry benchmarks and guidelines like the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB).
• Sustainability reports from competitors or peers.

Ensure that the survey is straightforward and accessible to stakeholders. Clear and concise questions will yield more accurate and actionable responses.

Once designed, disseminate the survey to identified stakeholders. The wider the dissemination, the more comprehensive the insights.

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3. Articulate Insights from the Survey

With a list in hand, the next step is to prioritise these risks based on their potential impact on your business and significance to stakeholders.

Use a materiality matrix: this is a two-dimensional chart where one axis represents the significance of the issue to stakeholders and the other represents its potential impact on the company.

By plotting each ESG issue on this matrix, you can visually identify:

• High-priority issues (high impact on both axes)
• Emerging concerns (high stakeholder concern but lower business impact, or vice versa)
• Lower priority issues

4. Validate and Integrate Findings

A materiality assessment is not an end in itself but a means to more strategic ESG integration and stakeholder communication.

• Ensure that the findings from the materiality assessment are aligned with the company's broader strategies and missions. This might involve setting specific targets or policies related to the material issues identified.
• Involve both internal and external stakeholders in the action plan. This not only ensures broader buy-in but also leverages the collective expertise of these groups.
• Finally, share the results and the consequent action plan with a wider audience. This can be done through formal reports, company websites, or other relevant media channels.

5. Review and Update Regularly

The ESG landscape is dynamic. Issues that are material today might be of lesser concern tomorrow, and new concerns can emerge rapidly. Hence:

• Review your materiality assessment at least annually.
• Stay engaged with stakeholders to understand shifting priorities.
• Stay informed about industry trends, regulatory changes, and global events that might introduce new ESG risks.

To conclude...

Materiality assessments are invaluable tools for companies, helping them prioritise their sustainability efforts effectively.

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