Materiality Assessment

Why are materiality assessments important? What do they involve? Are there some leading examples? Let's find out.

Materiality assessment is the process of identifying, refining, and assessing the potential environmental, social, and governance issues that can affect a business and its stakeholders.

“80 percent of the world's largest 250 companies identify material sustainability issues in their reporting.” ~KMPG

KPMG defines 7 steps that characterize their materiality assessments:

1. Defining scope and purpose

2. Identifying potential topics

3. Categorizing topics

4. Gathering information on impact and importance

5. Prioritizing

6. Engaging management

7. Seeking stakeholder feedback

There is a growing focus on materiality in sustainability frameworks like the Global Reporting Index (GRI). Within the above areas, different levels of categorization could be:

• Social and environmental megaforces: high level macro trends that affect business e.g. climate change, urbanization, resource scarcity

• Topics: defined issues or topics that can be managed e.g. energy use, workforce diversity, safety

• Sub-topics: more specific topics e.g. specific risks or opportunities, and

• Metrics: identifying metrics to track performance and progress.

Systemic Risk and Opportunities Map

A system risk and opportunities can be a great way to visualize material assessment. Here is an example from KPMG below:

This map is one way a materiality assessment can present the critical factors and connections that impact a business.

Further steps can include:

• Developing governance structures around the materiality process,

• Developing sustainability strategy and benchmarking it against peers,

• Integrating sustainability topics into the wider business strategy and risk management functions, and

• Utilizing the materiality assessment results to define additional sustainability reporting content.