Edie explains: Materiality assessments
In this week's 'edie explains' we've brought together everything you need to know about materiality assessments and what they might mean for your business.
In the simplest terms, ‘materiality’ refers to the relative importance of social, economic and environmental issues to a company’s stakeholders and the business impact of such issues.
What is a materiality assessment and why is it important?
As its name suggests, a materiality assessment is designed to help your company analyse the impact of material issues and rank them in order of importance.
Examples of issues which could be included are: climate change, supply chain sustainability, public policy, and governance.
The materiality assessment is important in identifying what needs to be put into your sustainability report and the information gathered can be used to develop products or services which enhance sustainable business growth.
What would my materiality assessment look like?
A survey should be conducted among the major stakeholders in your company to rank material issues in terms of importance and impact.
The materiality assessment may incorporate: the identification of significant economic, social, environmental, and governance issues for consideration; the ranking of the level of stakeholder concern regarding each issue; the ranking of the potential impact on the company of each issue; and the prioritisation.
Most companies plot a ‘materiality matrix’ to visually compare a range of issues important to stakeholders and impacting on business. The matrix can be used to inform strategy and reporting.
Before you can do this, you must identify and prioritise your company’s stakeholders and the issues that are important to them.
How do I identify and prioritise stakeholders and issues?
The stakeholders of your company could comprise non-governmental organisations (NGOs), the Government, investors and shareholders, employees, consumers, suppliers and the media.
When identifying stakeholders to engage with consider who might want to be involved as well as who you think should be involved in the process.
Stakeholders’ interests may vary between a range of topics including economical or environmental issues, social change, and safety and security.
It is important that specific issues are highlighted early on as using the ‘catch-all’ approach can impede the selection process.
What are the business benefits of a materiality assessment and how does it relate to the GRI framework?
The materiality analysis helps your company recognise and assess sustainability issues early on and allows you to focus corporate strategies on the areas of greatest risk and opportunity. It is especially useful for organisations carrying out a sustainability report or building a sustainability framework.
The Global Reporting Initiative (GRI) aims to help companies become more sustainable and contribute to sustainable development through its G4 guidelines.
In 2013, GRI moved the emphasis away from a broad agenda to those sustainability issues that are most material to your company, stating that any business wanting to continue GRI reporting must first conduct a materiality assessment.
Who is responsible for the assessment?
Most materiality assessments are carried out in-house. For example, Cairn Energy held a materiality workshop attended by senior management and monitored by an external corporate reporting expert to prioritise the company’s most important issues.
Groups such as Verego SRS and BSR provide cost-effective services and tools to help conduct a materiality assessment.
Associations which support and encourage materiality assessments include the GRI, CDP, Sustainability Accounting Standards Board, Global Real Estate Sustainability Benchmark and International Integrated Reporting Council.
How often should I revisit my materiality assessment?
Short-term issues such as changes in legislation changes or news events which suddenly arise will affect how often your business needs to address its materiality assessment. However, regularly revisiting and revising your assessment will ensure no issue is missed. The majority of companies chose to carry out an annual assessment.
Where can I find out more information?
– Lessons learnt: using GRI’s G4 reporting guidelines
– Example of a ‘materiality matrix’ from Nestlé’s 2013 materiality assessment
– Example of a materiality assessment from Cairn Energy
– Verego’s Materiality Assessment Service Overview