Materiality Assessments: Making ESG Manageable
Environmental, Social, Governance (ESG) reporting can seem very overwhelming to businesses, particularly those just starting out on their journeys. The range of factors that ESG covers is so broad and varied, it would be an impossible task for companies to cover all of them within their ESG strategy and reporting. It is important that businesses are concentrating their efforts on factors which are significant and material, not only to make the process more manageable, but also to ensure they are making the best impact possible.
Materiality assessments are a process used to help determine the most important ESG issues to the business and its stakeholders. This involves collating a list of potential relevant and material ESG topics, using sources such as internal data, industry trends, and the ESG landscape to inform the factors included. This might include environmental topics such as energy use and waste management, social topics such as diversity and health and wellbeing, and governance topics such as ethical behaviour and board composition.
The next stage is to identify and engage with stakeholders on what they see as the priority areas. This should include both internal and external stakeholders in order to capture a full range of views and ensure that the business is understanding the needs of its employees, as well as the communities in which it operates and is likely to have an impact on. This exercise is also useful for understanding how the company values align with stakeholder values, potentially highlighting some priorities which the business was not aware of and help ongoing engagement efforts with these stakeholders.
The results can be assessed and plotted in a materiality matrix, to highlight those factors that have been ranked the highest by stakeholders. It is a good idea to use these to inform which ESG areas to start tracking, set targets around, report on, and align ESG initiatives with. Having a select list of high priority areas, which have been informed by stakeholder engagement, provides a great starting point and will make devising an ESG strategy much more manageable. It is worth conducting materiality assessments every few years to identify any changes or new issues which may have become material to the business and stakeholders.
Not only are materiality assessments useful for a company’s internal ESG reporting, but they also help prepare for potential upcoming regulatory requirements. A variety of reporting standards such as the Global Reporting Initiative and the recently implemented EU Corporate Sustainability Reporting Directive require companies to conduct materiality assessments as part of the disclosure process.
If you would like some support with conducting your own materiality assessment, get in touch: firstname.lastname@example.org