How to complete a Materiality Assessment that adds value
Updated: 4 days ago
ESG experts Andrea Spencer-Cooke and Dr Anna Young-Ferris outline key steps to take in completing a Materiality Assessment, using a leading-practice approach that maximises positive outcomes for your organisation and its stakeholders.
A Materiality Assessment is a process that helps organisations identify, validate and prioritise their most important ESG issues.
With so many issues to address and potential stakeholders to involve, undertaking a Materiality Assessment has historically been neither quick nor easy. Organisations faced the complex challenge of researching and comparing the significance of a huge number and diversity of topics—from air pollution and water use to modern slavery and board diversity—while ensuring that a diverse and balanced set of stakeholder voices and perspectives were captured.
To prioritise and validate material topics, internal and external stakeholders were selected, surveyed, interviewed or participated in a workshop and the results weighted— often in a somewhat pseudo-scientific and less-than-transparent manner—to rank their relative significance. The resulting priority issues were then manually plotted into a materiality matrix.
The process was long, complex, and expensive.
Time for a reset
With ESG becoming a must-have for all businesses, spurred on by regulations like the EU Corporate Sustainability Reporting Directive (CSRD) and uptake of the Task force on Climate-related Financial Disclosure (TCFD) recommendations, it’s time for a rethink of legacy materiality approaches. As the number of reporting entities burgeons, companies need access to smarter, quicker, more cost-effective materiality solutions, so they can focus resources on the endgame of actually managing their impacts.
“Undertaking a materiality assessment is neither simple, scientific nor cheap” says Julia Höglund, Director, ESG and Sustainability Strategy at SB+CO. “It is a process that requires extensive research, internal and external stakeholder dialogues, surveys, management workshops and sign-off by the board of directors.” Moreover, outsourcing this process to external consultants often comes with a hefty price tag of $30,000-$100,000 for a single point-in-time report.
With 49,000 companies in the EU now preparing for compliance with CSRD, which stipulates a double materiality lens, Höglund estimates an approximate €5 billion could be spent on Materiality Assessments within the next 2 years—a big potential drain on resources for limited sustainability budgets.
Where Höglund does see value in ESG materiality going forward is through simplified, high-level assessments based on “quicker prioritisation exercises with some stakeholder engagement to identify priority E, S and G issues for the business.”
Materiality Assessment 2.0
Drova’s Materiality Assessment is a world-leading digital Materiality Assessment solution that allows organisations to engage stakeholders in high-level prioritisation of materiality issues—without the extensive manual work and high price-point of traditional methods.
Developed in partnership with attested corporate sustainability experts One Stone Advisors, and informed by global ESG frameworks including SASB and GRI, it is a streamlined materiality solution that digitises your materiality journey at a fraction of the time and cost. The outcome is a tailored set of priority E, S and G issues for your organisation, presented in a comprehensive Board-ready report, to inform and guide your sustainability strategy going forward. Here’s how it works.
5 steps to a credible ESG Materiality Assessment
Define the organisation's industry, boundary and location
Internal stakeholders rate the significance of key topics for the organisation
Engage relevant external stakeholders to rate the significance of key topics
Analyse combined results and prioritise material topics
Improve and report on ESG performance
Step 1: Define the organisation's industry, boundary and location
Start by updating your profile and tailoring it specifically to your organisation to deliver a customised experience to your stakeholders. Choose your industry group, sector focus, organisation type, and your individual role and stakeholder group.
Next, create your first assessment. Give it a title that will be easy to identify and reference later and set ‘open’ and ‘close’ dates for stakeholder input.
At this stage, you’ll be able to preview the ESG material issues your stakeholders see by expanding out each section. The initial list includes those issues pre-identified for your industry. These cannot be edited or removed, but you can add more issues as needed.
Step 2: Internal stakeholders rate the significance of key topics for the organisation
Kick off your Materiality Assessment with a free internal survey. You can add in internal stakeholders like your Board, Senior Management, and Employees, and share the assessment with them at no cost.The more honest and thoughtful a stakeholder’s responses are to the Materiality Assessment, the more useful they are to the organisation. The following guidelines can help when answering questions:
Understand the issue and read the full description. Consider the material issue and how it relates to your experience and perception, within the context of the organisation.
Understand the scale. On a scale of lower to higher, each internal stakeholder rates the issue’s significance to them in the context of the organisation. If they are unsure or undecided about the issue’s significance, they can select the middle of the scale. If they feel strongly that the issue is extremely significant—or not significant at all—they should mark it at the lowest or highest ends of the scale. This will provide the most accurate feedback to the organisation.
Don’t overthink it. The purpose of the assessment is to get honest feedback, so internal stakeholders need not worry overly about what the ‘right’ answer is. Instead, they should give their most intuitive response.
Step 3: Engage relevant external stakeholders to rate the significance of key topics
Next, engage your external stakeholders. It is important to seek feedback from a wide range of stakeholder groups to ensure that a variety of views are heard. This ensures that your final report reflects a holistic view of your organisation’s priority risks, impacts and opportunities.
The choice is yours, but we recommend at a minimum reaching out to customers, community, suppliers and investors. A key decision in the Materiality Assessment is choosing how many subgroups and respondents to invite within a given stakeholder group. For example, if you have 10,000 customers, do you send it to all of them or just the biggest three? Do you focus on top tier suppliers or dig deep and wide into your value chain?
Once you have populated your stakeholder groups and optional subgroups, it’s time to send out your assessment, and the tool makes this a breeze by generating emails to your chosen stakeholders and securely sharing a link to your Materiality Assessment survey. Billing commences at this point, once your first external stakeholder is invited to take the survey. External stakeholders include any individuals added into the community, customer, investor or supplier groups.
You’ll immediately be able to track responses and progress, including which surveys have been sent, which ones have been completed, and which ones remain outstanding so you can follow up.
Step 4: Analyse combined results and prioritise material topics
Once all responses from your stakeholders are in and the assessment is closed, a comprehensive, individualised results report will be automatically generated for you. The combined results from your internal and external stakeholders are revealed in a Materiality Matrix showing how each topic ranks in terms of its perceived significance to the organisation and its stakeholders. This matrix is a snapshot in time of the topics rated as having higher, moderate or lower significance. It enables your organisation to become aware of the ESG topics deemed most material, develop or sense-check strategy and move forward with confidence in managing, measuring, improving and reporting on your ESG performance.
Step 5: Improve and report on ESG performance
Your Materiality Assessment results report is a Board-ready report and provides essential information for setting or refreshing your ESG strategy, demonstrating commitment, building trust, increasing credibility and creating tailored communications on the matters your stakeholders care about.
It will also help you spot gaps and opportunities for better alignment with emerging expectations on the ESG risks and opportunities that matter most—and pinpoint areas where follow-up deep-dive stakeholder engagement could add value. This can now all be done in a matter of weeks—and at a fraction of the cost—of traditional, legacy, manual assessments.
As Julia Höglund concludes, “Materiality does have a role to play, but the focus should be on improving the process and using it with more judgement.” Our new solution is designed to do just that, by taking the pain out of the process and delivering greater value—for you, your shareholders, and your broader stakeholders.
With your Materiality Assessment report complete, you are one step closer to turning these valuable insights into a comprehensive and cohesive strategic action plan focused on real-world impact and improvement.
A revolution in Materiality Assessments
Undertaking a traditional Materiality Assessment can be a complex and challenging process for organisations. Due to the wide range of potential issues and the number and variety of stakeholders involved, materiality can be time-consuming and costly. Without robust and user-friendly tools to guide and streamline a very manual process, it can take up to 6 months and cost anywhere between $30k to $100k.
In partnership with ESG experts One Stone Advisors, Drova has released several state-of-the-art digital Materiality Assessments, including a simple Stakeholder Materiality Assessment and a leading-practice Double Materiality Assessment, so organisations can start their ESG journey at a fraction of that time and cost outlay. Designed with leading practice structure and processes built in, the Materiality Assessments build on recognised ESG frameworks. The output is a comprehensive, Board-ready report, with clear next steps to take and a blueprint for an integrated ESG strategy moving forward.
