Materiality Assessment and Prioritization

What

Materiality assessment is the foundation for environmental, social, and governance (ESG) programs. The materiality assessment identifies critical elements of a system, process, product, or company that positively and negatively impact the ability to achieve goals in each facet of ESG and sustainability programs.

Material issues represent a company’s most significant environmental, social, and governance concerns from the standpoint of stakeholder interests and a business’s license to operate. An area can be material for a variety of reasons, such as societal impact or emerging business risk. Even business opportunities that create advantage and differentiation can be materially beneficial.

It is also common for a benchmarking of other competitor companies and their priorities, past actions, and planned actions to be a part of the materiality process.

Why

Companies engaged in corporate reporting to disclose how sustainability policy and programs are implemented within the company will typically follow a sustainability plan. This plan, in turn, is often based on a materiality assessment that sets the direction implemented by the plan.

Several of the reporting protocols specify that the results of the materiality assessment be made a part of the company's sustainability plan.

The materiality assessment helps set the organization's priorities, and it essentially provides the basis and justification for the actions the company selected for implementation, as well as for the timeline associated for planned actions.

Finally, the materiality assessment can serve as a signal to the marketplace that the company is listening and is integrating customer and stakeholder input into its planned activities.

How

Any assessment begins by attempting to identify where a company is in its journey. To do this, a logical starting place is to review and compile publicly available data (e.g., reports) prepared by the company. To put these in context, the review should also gather similar information from competitors to see how their progress to date, their future plans, and their established goals align. This data can be supplemented with information from internal documentation such as policies and internal company reports.

To validate the company's position (is what they say what they do), key company function representatives can be interviewed to confirm awareness of policies and programs, as well as their perceptions of effectiveness.

Further, to lay the foundation for what should come next, stakeholder views from inside and outside the company are collected as inputs into the materiality matrix which unifies these perspectives concerning specific elements of sustainability. By analyzing this data, key stakeholders can collectively establish priorities.