“Materiality Assessment.” It can be an off-putting term for some organizations in the early stages of their ESG journey. They may feel a formal assessment is an unnecessary step, or be skeptical that assessing ESG factors will lead anywhere positive. The exercise is therefore typically approached as something a company has to do to fulfill reporting requirements for particular frameworks, rather than something that helps provide clarity.
But we’re here to tell you that the process and its outcome provide critical insights that help you cultivate an effective sustainability strategy for years to come.
A Quick Primer: Materiality Assessments
A Materiality Assessment is a formal exercise that includes asking your internal and external stakeholders how important a range of environmental, social, and governance issues are to them.
Companies often have a set of initiatives they’ve had in place for a while and, given the increased focus on corporate responsibility and ESG, they want credit for their efforts (rightfully so!). Others are just beginning to put pen to paper on what sustainability means to their organizations, with formal sustainability reporting as a distant aspiration.
Going through the process of a Materiality Assessment won’t undermine those efforts, but it will place them within a broader strategy. Giving each distinct element or initiative a purpose that feeds a specific goal tailored to your key audiences.
The term “materiality” itself causes some to back away from the exercise. Whenever the word “material’ comes into the equation, some tend to get cold feet. The solution? Call it something else: “ESG Priority Assessment” sounds nice, right?
The bottom line: whether you are a Fortune 10 company that’s had a formal ESG/corporate sustainability function for decades or you’re just starting out, this Assessment process is the foundation for informing reporting and strategy.
Identify ESG Priorities
While everyone brings their own “special sauce” to the assessment process, it’s a… process, meaning it encompasses the same steps. We leverage internationally recognized frameworks such as GRI, ISSB/SASB, TCFD, and <IR> to identify relevant issues.
We then group those issues and seek information and feedback from various stakeholder groups and develop a matrix.
For more details on the process, please read ESG and Sustainability Reporting Series: Materiality Assessments.
The most beneficial output from this step comes down to resource efficiency. With a clear understanding of what’s important, you can set priorities, allocate resources appropriately, improve performance, and communicate progress efficiently and effectively.
What if the initiatives you’ve championed for years aren’t ranked highly on the matrix? We’re glad you asked! Let’s start and end with everything on the materiality matrix is important. A lower ranking is still valuable data, it may just cause you to consider a slight reallocation of resources to other initiatives.
Align with Strategic Pillars
Strategic pillars. We’ve all seen them before: “People, planet, possibilities”; “Our environment, our community, our goals.” They are the overarching categories that capture the themes and initiatives a company addresses or impacts through its business activities.
By conducting an Assessment, companies that have well-established pillars might find that they are no longer relevant or applicable to internal and external stakeholders’ expectations. Or new ESG topics or issues may come to light through the process that can fold into what already exists.
For companies that don’t have strategic pillars, the assessment process helps organize what are often disparate initiatives into a cohesive roadmap.
For example, a manufacturing company may have programs purely dedicated to employee safety while another part of the business may be dedicated to upskilling and talent stewardship. If “employee wellbeing” is ranked highly in the assessment process (which is often the case), both initiatives offer a proof point for what the company is doing to address it.
Map to Frameworks/Metrics
One of the most gratifying aspects of conducting a Materiality Assessment is seeing how much current initiatives and programs overlap with reporting categories and requirements. Often, companies are already doing most of the work, but they aren’t contextualizing and tracking progress correctly.
In addition to aligning current initiatives with Framework categories and indicators, the process will show what metrics need to be gathered and reported and how.
If there is a considerable amount of work required to begin tracking metrics appropriately, the assessment process quite literally shows companies where efforts and resources should be focused in the short, medium, and long term.
Risks and Opportunities
ESG reporting is not a substitute for sustainability.
When you put all the outputs from a Materiality Assessment together, risks and opportunities become clear. The assessment brings the added benefit of highlighting what risks and opportunities rank most important to both internal and external stakeholders.
Like “Identify ESG Priorities,” you can reframe away from reporting to strategy. What are the greatest risks and opportunities you can address in the short term?
The Lost Step
The next, often forgotten step is communication. ESG and sustainability are a journey.
When you start working on select issues, you must communicate your progress internally and externally. On what initiatives are you going to focus? What are your goals? What milestones have you reached? Through communication, your stakeholders can join you in your journey, help keep you accountable, and reinforce their relationship with your company.
This last step is key to the basis of sustainability: transparency. If you do it correctly, your ESG and sustainability report essentially writes itself come reporting time.
What’s Next?
A Materiality Assessment with help you codify your existing sustainability efforts, understand your key stakeholder goals, and create a well-informed strategy for your company. Through this process, you can become a more effective part of our global transition to a more sustainable future.
Reach out to us with any questions.
