As industry stakeholder Environmental Social & Governance (ESG) expectations and regulations evolve, organizations are discovering the inherent value of a materiality assessment.
ESG reporting serves to provide transparency in an organization’s actions and reassurance to stakeholders. In preparation for ESG programs and reporting, a materiality assessment helps determine which issues should be included, targets set for, and reported on. While a materiality assessment is a vital step in developing an ESG roadmap because it provides transparency and legitimacy to company planning and disclosures, it also serves as the foundation of an organization’s risk management and strategy. Whether an organization is embarking on developing a sustainability roadmap, ensuring business continuity, engaging with stakeholders, performing necessary reporting, and monitoring progress, the first step should be a materiality assessment.
What is materiality?
An issue is material if it’s considered important to a company and its stakeholders, has the potential to influence decision-making, and can impact economic and ESG performance. Materiality is central to the management and planning of corporate sustainability, helping an organization to identify significant actions and set meaningful targets for relevant topics.
The Global Reporting Initiative (GRI) has published internationally accepted guidelines and standards, both general and sector-specific, for conducting a materiality assessment. The GRI approach includes understanding the organization’s context, actual and potential ESG impacts, assessing the significance of impacts, and prioritizing impacts for external reporting. Relevant processes to determine, identify and manage material topics need to be addressed to prioritize objectives and report externally. Ultimately, priority topics are determined based on the internal (the business and its organization) and external rankings (its customers, investors, and other stakeholders).
Identifying Industry Priorities
Materiality is influenced by several factors including regional impacts, operations, sourcing, and products. Different industry sectors will also have different priorities when it comes to risks and opportunities. These issues look at the environmental, economic, and social impacts that a company may have as well as business continuity issues. Although a topic may be a priority to some stakeholders, a company may discover its own operations and activities have less of an impact on this topic or is not applicable to a facility. The goal of identifying and ranking these topics is to develop a targeted list of issues for a company to set targets for, report on, and invest efforts into.
Examples of potential material topics by industries (can vary for a specific company):
Just as business activities, stakeholder expectations and regulations continue to evolve, a materiality assessment should also be regularly reviewed to ensure a company stays on track with established targets, maintains compliance with reporting, and meets changing demands of industry stakeholders.
To perform a materiality assessment, it’s necessary to include stakeholders – both internal and external. Internal stakeholders include members of the board, executives, and employees. Their areas of interest are used to help determine the impact an issue has on business continuity or success.
External stakeholders may include customers, investors, partners, community members, governmental and non-governmental organizations (NGOs), regulatory agencies, and industry peers. After all stakeholders are identified, an organization will evaluate the weight that each stakeholder and associated impacts have on the overall company to develop a materiality matrix that best fits the organization.
Reviewing the Importance of Issues and Developing a Matrix
After topics have been identified, a materiality assessment reviews the importance of each issue in the context of the organization to both internal and external stakeholders. The GRI, United Nations Sustainable Development Goals (SDGs), US Securities and Exchange Commission (SEC), European Union (EU) and other accepted standards are used to guide the process. A materiality assessment will typically initially involve document examination, analyzing disclosures, interviews, surveys, and annual reports provided by organizations. Consideration is given to the relevance to the organization and the sphere of influence to impact specific ESG topics. Topics are plotted according to external and internal importance, providing a useful mapping of the most significant issues that an organization will focus on.
From here, baseline data gathering can be accomplished, benchmarks identified, targets established, programs identified and modelled to ensure targets can be met, and ongoing performance monitoring and measurements can occur. A full materiality assessment helps ensure the appropriate topics are identified, and that resources are prioritized on more significant and impactful objectives that simultaneously meet business and ESG goals.
Capaccio’s mission is to help industry and the environment prosper. With Capaccio’s 30 years of experience in environmental engineering and EHS for clients within manufacturing, semiconductors, electronics, biotech, and pharmaceuticals, we not only understand what issues are most important to our clients but also how to act upon them.
Having a deep familiarity with industry and dynamic approach to sustainability planning, an expanded materiality assessment is a valuable resource that Capaccio is proud to provide.