Materiality assessment to facilitate non-financial reporting, but not only…

Finch & Beak’s 2022 survey on the state of ESG observed that 75% of companies surveyed identify collecting ESG data as one of their main challenges of implementing sustainability strategy and generating substantial impact. Increased regulatory demands, such as through the Corporate Sustainability Reporting Directive (CSRD) in Europe, and absence of harmonization between non-financial reporting frameworks and ESG benchmarks leave corporate sustainability departments struggling with the workload to respond to all these requests.

Systematic materiality analysis has rendered non-financial reporting more straightforward and efficient by allowing organizations to focus their reporting on the issues that matter most to stakeholders and from a business perspective. After identifying their material issues, companies can directly map them to the relevant disclosure requirements within defined reporting frameworks such as the European Sustainability Reporting Standards (ESRS), Global Reporting Initiative (GRI), and the Sustainability Accounting Standards Board (SASB), etc. This mapping exercise will then be used to build and structure the organization’s reporting while ensuring alignment with its sustainability program and goals.

Non-financial reporting is not the only purpose of materiality assessments. To prevent that it becomes the end station of the materiality assessment process, companies should use the results of this activity to create an impact that is tangible for their clients, suppliers, employees, investors, etc. by leveraging sustainability opportunities and to address sustainability risks for their business.

Leveraging your enterprise risk management (ERM) using your materiality assessment

Many organizations recognize the importance of considering sustainability risks and opportunities alongside financial and operational risks to achieve a comprehensive view of their risk landscape. Double materiality assessment can help to better understand the strong correlation between these financial and sustainability risks and opportunities.

After having conducted a comprehensive materiality analysis, some essential steps can be taken to facilitate the integration of these outcomes into the ERM process. Reviewing the organization’s existing ERM framework to determine how the material sustainability risks align with or intersect with the existing risks is a first key step. After this review, an update of the risk identification and assessment processes within the ERM framework will be necessary to include the identified sustainability risks and opportunities. This may involve creating specific risk categories or domains related to sustainability and ensuring that the criteria used for assessing and evaluating risks are adjusted to encompass the unique characteristics and impacts of sustainability risks. From then on, it will become possible to prioritize the sustainability risks as part of the ERM framework and develop risk mitigation strategies, considering the opportunities identified. The effectiveness of such strategies will be evaluated using relevant metrics. At this stage, the integration of sustainability-related data collection and reporting systems with existing ERM reporting mechanisms can even be considered.

Fostering organizational awareness and engagement is key to a successful integration of the materiality assessment into the ERM process. Risk management departments will likely need to be trained in relation to the importance of sustainability risks and the assessment and quantification of their impacts while collaboration and knowledge sharing will need to be fostered across departments to address sustainability risks.

Embedding the outcomes of your materiality assessment into your sustainability strategy

Embedding the outcomes of the materiality assessment into your sustainability strategy enables the efficient allocation of efforts and resources towards areas that are most relevant and impactful. For practical guidance on the key steps of this process, download the material at the top of this page.

Telenet, a Belgian telecommunications company, conducts a formal materiality assessment every three to four years and smaller updates in between to take into account evolutions in its business scope and the stakeholder as well as non-financial reporting landscapes. The prioritization of the material issues identified within the course of such assessments is used to refine the sustainability program of the organization. With a sustainability program 2021-2025 structured by three main pillars, namely, progress, empowerment, and environmental responsibility, Telenet ensures that its priority sustainability issues inform the strategic goals and related KPIs and strategies defined within each pillar to better guide the allocation of the organization’s efforts and resources.

Siemens, a global technology company, uses the outcomes of its materiality assessment to form the framework (DEGREE) that guides the implementation and advancement of sustainability within the company. The framework encompasses key areas identified through the assessment such as climate change mitigation, resource efficiency, and ethical conduct, as well as ambitious goals for reducing greenhouse gas emissions, increasing energy efficiency, and promoting sustainable innovation. In addition, the company has embedded its material sustainability topics into four wider business strategic priorities to ensure that sustainability remains an integral part of the business and is addressed by all levels and functions within the organization.

Interested in knowing more about double materiality assessments and ESG strategy development?

If you would like to know more about double materiality assessments or require assistance with your materiality assessment and ESG strategy development, get in touch with Johana Schlotter at Johana@finchandbeak.com or call +31 6 28 02 18 80 to discuss how Finch & Beak can support you.

Photo by Cristina Gottardi on Unsplash