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Materiality assessment is a tool used to identify and prioritize potential Environmental, Social, and Governance (ESG) issues that are critical to an organization’s success. Material assessment is a hot topic in the corporate sustainability world as it helps a company make sense of the sustainability landscape and build a powerful strategy for focusing and acting on those issues that could impact the business and its stakeholders.
Because companies have a wide variety of sustainability issues to manage and tackle, the material assessment makes it possible to rank the issues according to their implications on the organization’s ability to operate, to be profitable, and in accordance with the level of interest in stakeholders. As a result of this analysis, companies can create their long-term ESG strategy and targets as well as develop effective strategies to report the data found as a result of the process.
Benefits of carrying out a materiality assessment
The advantages of taking a thorough and inclusive materiality assessment include:
- Informing strategy development: Materiality assessment makes it possible to identify trends that could significantly impact a company’s ability to create value in the long-term and to readjust and improve its business strategy eventually.
- Justifying resource allocation: Few companies today have the resources to invest in sustainability issues that do not return value. Carrying out a materiality process allows companies to make a strong case for how they decide to distribute people, budgets, and investments.
- Enhancing engagement: An inclusive materiality process involves reaching out to internal and external stakeholders to get their input, providing a solid base for an ongoing conversation on how to better develop a strategy.
- Building buy-in: Because the process requires the company to gather the opinions of stakeholders, it helps to strengthen the confidence of stakeholders in the resulting outcomes. In other words, it increases the chances of better satisfying stakeholders’ demand.
- Influencing content and structure: Materiality assessments helps to inform a company’s approach to the disclosure of information on sustainability. The resulting outcomes of the process help companies position their reporting to deliver relevant insights that will meet the reporting expectations of stakeholders.
- Measuring performance: It provides an opportunity for organizations to understand where they are creating or reducing value for society. In other words, it provides a basis for the development of performance measures.
- Leveraging opportunities: Materiality assessment makes it possible for organizations to position themselves to take advantage of opportunities to develop new products or services and stay ahead of the competition.
Seven steps for conducting a successful materiality assessment
Conducting a materiality assessment can be a daunting task, but you will find it easy by following the seven basic steps that are in line with the Global Reporting Initiative (GRI) methodology.
1. Identify internal and external stakeholders
A successful materiality process must make use of the opinions and insights of both stakeholders within and outside the company walls. It’s important to include key contacts that can make meaningful contributions to the company’s sustainability strategy. Good examples of external stakeholders include trade associations, key customers, and NGOs.
2. Conduct some initial stakeholder outreach
Before you delve into the critical part of the process, it’s advisable that you get in touch with the contacts you will like to engage so you can solicit their support for the materiality assessment. Your pitch should be brief and should include why the insights of the reader are valuable.
3. Identify and prioritize what you want to measure
The next step is to identify and rank the issues you want to measure in their order of importance. Sustainability issues can be grouped into three categories:
- Economic e.g., revenue, profit, company turnover
- Social e.g., labor statistics, human rights, employee remuneration, community impact
- Environmental e.g., water stewardship, greenhouse gas emissions, waste management
4. Design your materiality survey
This is the stage where you develop formal, structured engagements that are easy for participant groups to complete as well as easy for you to analyze the results. Be sure to design the survey in such a way that you can analyze the quantitative data and present it visually.
5. Launch your survey and start collecting insights
When you’re done the hard work of preparing the materiality survey, the next thing to do is to invite the stakeholders to take your survey. Reach out to them with the link to the survey, expressing your appreciation for their willingness to participate while politely stating the deadline.
6. Analyze the insights
After gathering the insights, review all the results, and analyze them in ways that can easily be understood. Find out the issues that were the most important to each group and also take note of the comments because that’s often where the most value is derived.
7. Stakeholders weights
To balance the stakeholder’s roles and materiality topics, one of the common technique is to add numeric weights to the inputs based on stakeholder’s role. The C-level input to material topics should hold more weights than others, thus provide a more pragmatic and balanced results.
8. Implement the insights
This is the final stage where you implement the insights by incorporating them into your strategy.
A materiality assessment requires time, effort, and resources, but the benefits are worth it as it helps companies to remain profitable while also attending to other critical issues that might impact its performance.
ESG Enterprise provides tool to assist with materiality assessment for ESG assessment and ratings.