The Importance of Materiality in Sustainability
As sustainability reporting continues to evolve, organisations continue to revise and update their materiality assessment process to better understand the impacts they have on their business and stakeholders. However, with the scope of Environment, Social and Governance (ESG) topics that can be reported on, it can be difficult to determine what to disclose and which standard to select. This is why going through a comprehensive and robust materiality assessment process is so important, but where do you start?
Determining Materiality
Materiality, as it is commonly known, is used in the financial sector to determine information that is significant within a company’s financial statements. Materiality in the sustainability sense is the process of determining which ESG topics are relevant to an organisation and their stakeholders. In sustainability, what is considered material can be seen from two perspectives: financial and impact materiality. Where financial materiality considers the financial impact of ESG topics on an organisation (outside in), impact materiality considers the impacts that an organisation has on the environment and society it operates in (inside out).
The type of materiality used is generally dependent on the reporting standard, with the International Financial Reporting Standards (IFRS) and the Sustainability Accounting Standards Board (SASB) focusing on financial materiality and the Global Reporting Initiative (GRI) focusing on impact materiality. While there are benefits to each approach, independently neither informs the whole picture which is where double materiality comes in.
Double materiality considers both the internal and external impacts to take a holistic approach to identify what is material for a company’s ESG reporting. Now that we know what materiality is, it’s time to go through the process to determine on what your organisation reports on.
Materiality Process
In accordance with relevant guidelines, Greenbase has developed an ESG materiality assessment process to assist organisations to confidently and transparently identify the material ESG topics relevant to their organisation.
We believe that to underpin a sustainability strategy, it is key to first identify what is important to disclose. Organisations that understand this will be in a better position to manage their material ESG risks and opportunities. Rather than materiality assessments being an independent process, sustainability focused organisations should use this as a strategic business tool to imbed sustainable practices.
The 6-step approach Greenbase takes in determining ESG materiality is summarised below:
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Our first step is to understand the context of your organisation, defining what materiality means for you and the boundary of the process. This process includes identifying relevant internal and external stakeholders that will form part of the assessment.
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Once the boundaries of the assessment have been determined we review your organisation and identify a list of likely material ESG topics. Topics may be included or excluded based on your organisation’s context (e.g. industry or operating locations).
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After the potentially material topics have been selected, we work with you to survey your stakeholders. For some, this is an internal only process, while for others we work with your external stakeholders to get a broader understanding of what is material. Stakeholder engagement may be either quantitative or qualitative.
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We collect all the responses to the survey, synthesising them into a matrix to outline relevant significance and determine which standard best aligns with your business needs.
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We present the results of the assessment to you, explaining which topics were material, which lens of materiality was most relevant, and patterns we found in the information.
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Once the material topics and relevant sustainability standards have been selected, it is time to disclose your organisation’s performance. We are on hand to make your life as easy as possible as you begin reporting.
Where to Next?
Once the materiality process is complete, you will have an understanding of the key ESG-related aspects of your business and the best standard to effectively disclose information on them. From there, it is time to start collecting data. Materiality, however, is not a fixed outcome and is dynamic as your business or the broader environment changes. We recommend that the materiality process be assessed on the need to repeat on a semi regular basis, such as whether there were major changes to your business, to ensure that it continues to reflect your organisation’s current ESG risks and opportunities.
As pioneers in environmental and sustainability reporting, Greenbase is committed to simplifying your ESG reporting journey. Let us transform the complexities into a seamless process. Reach out to us today to initiate your organisation’s ESG materiality assessment.
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