You have been tapped to work with a team of colleagues to advance sustainability at your company. It’s a role that holds great potential for positive change – but it also can feel a bit overwhelming. As you step into this role, you might find yourself asking, “How do I create a meaningful program? What should I prioritize?” Rest assured, it is natural to struggle and you’re not alone. Many sustainability leaders have faced the same daunting challenge.
When it comes to sustainability, the most effective programs are grounded in a crystal-clear focus on the environmental, social and governance topics that present the greatest risks and opportunities for your business and stakeholders. These topics are unique to each organization and evolve over time as stakeholder expectations change, new risks emerge, and industry dynamics shift.
Referring to peer practices as well as standards and reporting frameworks (IFRS, SASB, TCFD & more) provide important guidance, but to truly uncover the risks and opportunities that affect your business and create a sustainability program that creates stakeholder value, a materiality assessment is a must.
Did you know? According to a KPMG survey in October 2022, 75% of the N100 and G250 carried out stakeholder materiality assessments.
What is a materiality assessment?
A materiality assessment identifies the environmental, social, and governance issues of greatest impact and importance to your company’s operations and stakeholders. It provides a strategic foundation for your sustainability efforts by helping you identify and better manage nonfinancial business drivers, opportunities, and risks.
Here’s a five-step guide to conducting materiality assessments.
- Identify potential sustainability topics that are relevant to your company: Consider reporting frameworks and standards, global sustainability trends, industry-specific topics, and known operational risks and opportunities.
- Select and engage with key stakeholders: Identify your most important stakeholders – such as employees, customers, investors, board members and more – and gather input on your sustainability topics through quantitative surveys and qualitative interviews.
- Assess business and stakeholder impact and importance: Analyze the magnitude, scale, and likelihood of positive and negative impacts of each sustainability issue and evaluate the importance expressed by stakeholders.
- Develop the materiality matrix: Assign scores to each sustainability topic based on impact and importance and plot your sustainability topics on a two-dimensional graph to visualize your materiality matrix.
- Analyze the materiality matrix and prioritize material sustainability topics: Identify the key material topics that fall within the high-impact, high-importance quadrant and develop a sustainability strategy to prioritize and address these business drivers, risks and opportunities.
It can be beneficial to engage a third party to add credibility to the process and ensure honest feedback from stakeholders.
Five Benefits of Materiality Assessments
Materiality assessments offer a range of strategic benefits that help you develop a meaningful sustainability program and drive stakeholder value:
- Enhance engagement with key stakeholders and gain insights into ESG trends: Your stakeholders want to know that you care about their opinions. Foster a meaningful dialogue with them to enhance your understanding of their sustainability expectations as well as current trends and ensure alignment and buy-in early on.
- Refine your priorities and efficiently allocate resources: A materiality assessment helps cut through the noise and drills into the sustainability topics that matter most to your organization and stakeholders. Refine and validate your priorities to build a compelling business case for sustainability based on stakeholder impact and importance, and then efficiently allocate resources.
- Strengthen your corporate governance and risk management: Assessing non-financial materiality is risk management. Analyze the potential impact of environmental, social, and governance factors on your business operations, and proactively identify and manage associated business drivers, risks and opportunities.
- Root sustainability in materiality and strategy: Develop an overarching sustainability strategy that centers around these material business drivers, opportunities, and risks and build a scalable, company-wide foundation.
- Develop best-in-class reporting and communication strategies: Align your sustainability disclosures with stakeholder expectations to ensure that the reported information is relevant and valuable to them. In addition, tailor your narrative based on stakeholder interest to further enhance engagement.
Whether you are developing a sustainability program from scratch or are scaling existing efforts, materiality assessments are a best practice to identify the risks and opportunities that are material to your business and stakeholders and can provide clear direction for your program.