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10 Steps to a Powerful Double Materiality Assessment
July 16, 2024 • 4 min read
Double materiality is a core principle in sustainability reporting, particularly under the Corporate Sustainability Reporting Directive (CSRD). It requires companies to assess and disclose not only how sustainability issues affect their financial performance (financial materiality) but also how their activities impact society and the environment (environmental and social materiality).
Core Concepts
Materiality refers to identifying information that is relevant to specific users. Information is considered material or relevant if it could influence stakeholders' decision-making processes regarding the reporting company.
The core purpose of a materiality assessment is to determine which issues have the greatest impact on the company’s ability to create value, manage risks, and meet the expectations of its stakeholders. This process ensures that the company's strategic planning and reporting are aligned with what matters most to its stakeholders.
Stakeholders are individuals and groups that have an interest (stake) in the company’s operations, as they can be affected by its activities. These include business partners, civil society organizations, consumers, customers, employees, governments, local communities, investors, suppliers, and vulnerable groups.
10 Steps to a Powerful Materiality Assessment
Step 1: Identify Your Stakeholders
- Compile a comprehensive list of all relevant stakeholders.
- Include internal (employees, management) and external stakeholders (customers, suppliers, investors, community groups, NGOs).
Step 2: Identify Your Sustainability Topics
- Determine key sustainability topics relevant to your industry and company.
- Consider environmental, social, and governance (ESG) issues.
- Engage stakeholders to validate and refine these topics.
Step 3: Identify Relevant Third-Party Frameworks
- Review and select appropriate sustainability reporting frameworks (e.g., GRI, CSRD, SDG).
- Ensure alignment with industry standards and stakeholder expectations.
Step 4: Analyze Impacts, Risks, and Opportunities (IRO)
- Conduct a thorough analysis of each identified topic.
- Assess the potential impacts, risks, and opportunities associated with each topic.
Step 5: Assess the Severity of IROs
- Evaluate the severity and likelihood of impacts, risks, and opportunities.
- Use quantitative and qualitative data to support the assessment.
Step 6: Develop a Materiality Matrix
- Plot the identified topics on a materiality matrix.
- Use axes to represent the significance of the impact on stakeholders and the company.
Step 7: Prioritization
- Prioritize the topics based on their position in the materiality matrix.
- Focus on issues with the highest importance and impact.
Step 8: Develop a Plan
- Create a strategic plan to address prioritized material topics.
- Define goals, actions, and responsibilities.
Step 9: Continuous Review and Adaptation
- Annually review and update the materiality assessment.
- Adapt to changing conditions, stakeholder feedback, and emerging issues.
Step 10: Stakeholder Engagement
- Maintain ongoing dialogue with stakeholders.
- Communicate progress and solicit feedback to ensure alignment and trust.
Remember, a double materiality assessment is not just a one-time exercise but an ongoing process that requires constant attention and adaptation to changing conditions and stakeholder expectations. Regular updates and stakeholder engagement are crucial to maintaining the relevance and effectiveness of your materiality assessment.
