4 steps to conducting a materiality assessment 

What is a materiality assessment?

In 1867, the English Court introduced the term ‘Materiality’ in a case, defining it as ‘relevant, not negligible fact’. Ever since the concept has been evolving. In 2006, GRI G3 Guidelines introduced the concept of materiality into the corporate sustainability reporting context.

Today, it has two main areas of focus: a financial materiality perspective and a non-financial materiality perspective. Completion of the assessment is a strategic sustainability tool. It is double materiality as it considers what investors value but also all other stakeholders. This relates to both social and environmental impact.  

The adoption of the materiality assessment process as a guide to sustainability reporting and strategy has consequently increased over the years. About 80% of the world’s largest companies are identifying material sustainability issues in their reporting. Expectations and reporting standards are growing fast. There are now twenty times more non-financial disclosure requirements than there were five years ago.

Why perform a materiality assessment?

Transparency has been a driving concern. Businesses increasingly need to meet expectations from socially and environmentally conscious consumers, investors, employees, regulators, etc. for their global reporting initiatives. 

A materiality assessment or evaluation is the opportunity to assess the environmental, social and governance (ESG) impact of your organisation. The assessment helps with broader emerging challenges that are critical to the success of a business, such as complying with EU reporting standards.

The materiality process guides companies to:

• Prioritise the identified issues;
• Mitigate risks;
• Drive resource allocation;
• Set goals.

It is also a chance to engage stakeholders, focus on sustainable development and apply an added perspective to business risk.

A materiality assessment answers the following questions:

• Who are my most important stakeholders (for of scope and impact)?
• What are my areas of material focus?
• Where should we focus our efforts and resources?

How to perform a materiality assessment?

How to perform a materiality assessment

Step 1: Understand the context and identify material topics

First, you will have to define the purpose, scope, and approach the company wishes to set. The reporting framework will have an impact. You will be able to conduct some research leading to a long list of material issues. Usually based on relevance to your industry, location, and/or organization.

Then, you will map the upstream and downstream stakeholders making sure to diversify to ensure a comprehensive perspective. 

Step 2: Engage, prioritize and consolidate

At that stage, you want stakeholders to engage. The goal is to get to a shortlist of what is the most relevant to your business operations. You will need to draft an engagement plan. Each group will likely prefer or require a different type of engagement.

Workshops, focus groups, interviews, or questionnaires are some of the ways you can approach each stakeholder. This applies to both internal and external stakeholders. We recommend using existing networks or processes for better engagement. Subsequently, you will rank the shorter list in line with the most urgent points.  

Step 3: Combine and cluster results

After involving the relevant stakeholder groups, it’s time to narrow down your list further. Let’s take a step back to the big picture and incorporate all your results around your long-term strategy. By doing so, you can identify material topics and strategic pillars and elaborate concrete actions from the analysis. 

Step 4: Integrate, communicate and monitor 

The final step will be to visualize your material issues and communicate them. First, map your results from step 3 on an X-Y axis. That will help to define priorities, taking into account the risk they represent. Then, it is time to exchange internally and integrate your findings into your sustainability strategy with actionable goals.

You should also consider a communication plan for stakeholders. It allows them to advocate the topics and include the most pressing ones in the decision-making process. 

Challenges of materiality

Conducting a materiality assessment can be challenging. Clients often face difficulties:

• Finding the right way to prioritise topics;
• Defining boundaries;
• Engaging stakeholders;
• Gathering the data.

How to prioritise topics

Some organisations find it difficult to narrow down the list of topics to include in their materiality assessment.

A common (and honest) mistake is to create a long list of topics that grows each year. New topics can constantly emerge as significant risks to the company. This makes it hard to focus, set targets and communicate your organisation’s impacts and priorities. ​

​Use the materiality process to prioritise. Condense and simplify your risks and opportunities and don’t end up with more than a dozen topics.

Create a ‘consideration threshold’. Map scale against the likelihood of impact per topic, which allows you to narrow it down.

Make sure to cluster topics around clear strategic pillars.

How to define boundaries

Many clients struggle with defining how far their responsibility ‘boundary’ extends. Are companies responsible for upstream suppliers and the behaviour of downstream consumers? It is a concept that was clarified when talking about emission scopes. However, it sometimes remains blurry when discussing social and human rights issues. 

​Identify your largest impact hotspots and ensure that your materiality assessment reflects the real ESG impact of your business. Mapping your value chain and related impacts can be a useful exercise.

Is this your first materiality assessment? Then it could be easier to prioritise your group-level approach. You can adapt it to business-unit or geography level at a later stage.

How to engage stakeholders

The list of stakeholders can be very long and complex. Here is a list for you to consider:

• Business leaders;
• Employees;
• Industry organizations;
• Investors;
• Regulators;
• NGOs;
• Consumers.

Making sure to include everyone can seem like a huge task and even risky sometimes.

Don’t reinvent the wheel and use your existing networks. Customer satisfaction and employee engagement surveys can be a good starting point for your stakeholder engagement strategy. Company intranets, groups, committees, etc. can become highly useful in gathering insightful data about material topics for different stakeholders.

A materiality assessment is key to effective financial and sustainability reporting. It helps your business focus on issues that matter most to stakeholders, society, and the environment. Using a sustainability reporting guide ensures clear and meaningful disclosures, supporting long-term success and positive impact.

With evolving ESG strategies and CSRD implementation, the importance of double materiality is more relevant than ever. If you wish to take your materiality assessment knowledge one step further, read here about recent DMA updates.