Materiality assessments are essential in the realm of sustainability reporting as they aid in identifying the most crucial issues that an organization faces and deciding what should be reported. The process includes gathering input from both internal and external stakeholders, which can be time-consuming but also offers the opportunity to gather insight on strategy. However, many organizations stumble in the execution of materiality assessments. To improve them, it is crucial to have a clear understanding of the desired information, ask the appropriate questions, select the right stakeholders, and present the information in a way that aids in decision-making. Additionally, materiality assessments should not only inform reporting but also inform and guide strategy.
What is "Double Materiality"
Double materiality is a concept that establishes whether or not a sustainability topic or information must be presented in a company's sustainability report. It is the combination (not the intersection) of financial materiality and impact materiality. If a sustainability topic or piece of information is either material from an economic point of view or from an impact point of view, or from both, it meets the criteria of double materiality.
Step-By-Step Guide
Glossary
Sustainability issues, matters or topics | An issue related to sustainability is a particular aspect of sustainability in which an organization can have an influence on the people or the environment, or which presents the organization with potential risks or opportunities. ☝🏼 In the scope of ESRS it can stand for ‘sub-topic’ or for ‘sub-sub-topic’. |
Stakeholders | Those with a vested interest in a company's decisions and actions are known as stakeholders. There are two main categories of stakeholders:
|
Here is the process to perform a double materiality assessment within your company:
Specify the objectives, range, and process of the materiality assessment. Pinpoint the ambitions of the study and mark the group of people that the results are intended for.
Analyze and recognize applicable sustainability topics related to the organization's sector, area, and way of operating. Take advantage of internal and external sources such as risk records, market regulations and systems, best practices, comparison with other organizations, social media, and sector groups.
Put together a value chain chart that recognizes vital stakeholders, including upstream suppliers and downstream customers. By selecting a varied set of stakeholders, a thorough and fair outlook can be achieved.
Identify the approach for interacting with stakeholders, taking into account elements such as their magnitude, power, and effect. Make use of various techniques for stakeholder communication, like personnel training seminars, conversations with top suppliers, and surveys.
Conduct surveys. Take advantage of existing systems and involvement techniques to prevent redundancies. Include components like employee satisfaction surveys and market initiatives in the evaluation. Moreover, execute a thorough scan of social media, industry-related news, and rules applicable to the business's area.
Consolidate and prioritize findings, with the objective of filtering through essential problems and organizing them by importance.
Cluster the results from stakeholder engagement around key reporting pillars and reintroduce the concept of 'boundaries' to highlight where the company is having an impact across its value chain. This will build a concrete framework for later documentation.
Graphically display the material issues by plotting them on an X-Y graph to indicate levels of risk and the influence of stakeholders. The Y-axis should reflect the importance of the organization's ESG effects or risks (impact materiality), while the X-axis should illustrate the effect on the stakeholders' assessment and decisions, based on the stakeholder involvement process (financial materiality).
Inspect the discoveries internally and incorporate them into the organization's sustainability policy. Prioritize the issues of great importance to the stakeholders and utilize the conclusions to arrange yearly or combined reports in a straightforward and consistent way. Moreover, convert the material topics into exact, measurable objectives, goals and promises to furnish a structure for action.
Continuously monitor the material issues, as what might be viewed as immaterial today can rapidly become material later on. The materiality analysis is an ongoing process, not an one-time undertaking. Consider the idea of "dynamic materiality", as expounded upon in literature on the point.
Challenges and tips
😬 It can be difficult for certain organizations to determine which topics and indicators to include in their materiality evaluation. ☝🏼 A common misstep is to assemble a lengthy list of topics that increases each year as new concerns become significant for the company. This makes it arduous to concentrate, set aims and communicate the impacts and priorities of the business. To avoid this issue, use the materiality process to prioritize, condense and simplify your risks and possibilities. Endeavor to have no more than a dozen topics. Formulate a 'consideration threshold' based on the degree and possibility of influence of each topic to narrow down, and guarantee to group topics around distinct strategic pillars.
😬 It can be difficult for sustainability managers to involve senior leadership in the materiality assessment. ☝🏼 This is likely because leadership does not understand the implications of the process in relation to value creation, strategy, and potential risks and benefits. To address this, it is essential to stay focused on the major point and value of the exercise. Ensure that the purpose of the materiality assessment is evident, the outcomes are known, and how it will fit in with the company's objectives and scheme. Interviewing business leaders throughout the process and ensuring that the results of the assessment are in line with the company's long-term goals and plan is also recommended.
😬 Difficulty determining the extent of the accountability (responsibility ‘boundary’). ☝🏼 Should companies be held responsible for the actions of their upstream suppliers or downstream customers? This has been clarified when it comes to emissions but can still be unclear in the case of matters dealing with human and social rights. To rectify this, identify your greatest areas of impact and make sure the scope of your materiality assessment reflects the actual ESG effect your business has. Examining your value chain and connected effects can be beneficial. If this is your first materiality assessment, it might be easier to begin with a group-level approach and then modify it for business-units or certain regions at a later time.
Disclaimer
Overall, the double materiality assessment is a complicated process. Usually, it involves a bunch of people and requires assembling a good data set. It's incredibly uncomfortable for those conducting the assessment for the first time. And the only way to get familiar with it and use it in your favor - is to do it.
We will be honored to assist you in your first (or consecutive) assessment journey.