1.2 What is a materiality assessment?
An Environmental, Social and Governance (ESG) materiality assessment is an activity that helps organisations determine which ESG (or sustainability) topics are relevant to them, and should be prioritised for managing and reporting.
It’s a foundational activity for establishing and maintaining a sustainability program, and it’s particularly important for companies that publish ESG disclosure reports.
1.3 The role of the materiality assessment in different disclosure frameworks
It’s now common practice for organisations to disclose information about their ESG performance, and usually in the form of reports.
ESG disclosure frameworks are guidelines that help companies report information about their ESG performance in a standardised way, enabling the performance of one organisation to be compared with another.
Some of the more prominent ESG disclosure frameworks are those developed by:
- Global Reporting Initiative (GRI)
- International Sustainability Standards Board (ISSB)
- Sustainability Accounting Standards Board (SASB)
- Task Force on Climate-related Financial Disclosures (TCFD)
- Carbon Disclosure Project (CDP)
- World Economic Framework (WEF)
Some of these frameworks focus on a specific topic; for example, the TCFD and CDP frameworks guide organisations to provide standardised information about climate change.
Other frameworks, like GRI, ISSB, SASB and WEF, guide organisations to disclose information across many topics.
Depending on the disclosure frameworks they choose, organisations could be left to choose from up to 100 different topics to report on.
See slide 1 for an overview of some of the many sustainability topics an organisation could choose to manage and report on.
A materiality assessment helps the organisation decipher which of all the topics are relevant to its context, so that it can focus its reporting on the most important information.
1.4 The role of the materiality assessment in legislated sustainability reporting
Many jurisdictions globally have mandated, or plan to mandate, sustainability-related reporting for organisations that meet certain thresholds for annual turnover, employees and / or assets. These jurisdictions include the European Union, Australia, New Zealand, Canada, the United States, Singapore, and many more.
Organisations with a legislative requirement to provide sustainability-related reports are typically asked to provide information about their material topics only, and to disclose how they determined materiality. A best practice materiality assessment helps organisations meet these legislative reporting requirements.
1.5 Beyond reporting: More benefits of conducting a best practice materiality assessment
Organisations that simply want to adopt more sustainable practices without producing reports can still benefit greatly from conducting a materiality assessment.
A best practice materiality assessment provides an organisation with a comprehensive understanding of its sustainability-related impacts, risks and opportunities. This information can be used to inform strategy, decision-making and risk management, which ultimately supports the organisation’s financial success.
In fact, a materiality assessment and the ongoing monitoring of material topics should be integrated with an organisation’s risk management framework for best practice ESG management, regardless of whether or not the organisation wishes to produce disclosure reports.
A materiality assessment is also an important activity for budget allocation and forecasting; it ensures money is allocated to activities that actually matter to the organisation, instead of activities that are ‘trendy’ without any tangible connection with an organisation’s unique business objectives.
1.5 Beyond reporting: More benefits of conducting a best practice materiality assessment
Organisations that simply want to adopt more sustainable practices without producing reports can still benefit greatly from conducting a materiality assessment.
A best practice materiality assessment provides an organisation with a comprehensive understanding of its sustainability-related impacts, risks and opportunities. This information can be used to inform strategy, decision-making and risk management, which ultimately supports the organisation’s financial success.
In fact, a materiality assessment and the ongoing monitoring of material topics should be integrated with an organisation’s risk management framework for best practice ESG management, regardless of whether or not the organisation wishes to produce disclosure reports.
A materiality assessment is also an important activity for budget allocation and forecasting; it ensures money is allocated to activities that actually matter to the organisation, instead of activities that are ‘trendy’ without any tangible connection with an organisation’s unique business objectives.
