February 1, 2022

Sustainability Series 4: Materiality Assessments

Sustainability Series 4 is covering materiality assessments, an application of Strategic Thinking. This weeks’ article will cover the reasoning behind materiality assessments for business, and then provide CIRT’s materiality assessment outline for how to implement this process in your own organization. 

What is Materiality?

Companies can have hundreds of potential environmental and social impacts that affect the success of their business. Determining which of these impacts is significant or material for the future of the company can be a challenge, but it is essential to improving sustainability because a single company only has so much bandwidth for addressing these issues. Materiality assessments identify the impacts that must be addressed- the ones which, if omitted, could cause significant consequences. In the sustainability context materiality means that an issue is relevant and important for both an organization and its stakeholders. Materiality assessments can often start from a risk basis: how likely is an impact to occur, how severe would it be if it did, and then how important the impact is to the business and its stakeholders. When companies begin Corporate Social Responsibility (CSR) work, they should think about materiality and risk in order to prioritize the issue to tackle first. For example, it might be very easy for a business to advance their Environment, Social, Governance (ESG) score by adding a lactation room to their facility. However, if the company is 90% male and only 10% female it might be more material to first work on hiring a more diverse workforce.

Materiality Assessment Outline

We have adapted the materiality assessment format from the consulting company BriteGreen to create the outline below. Major changes that we made were increasing consideration of environmental and community effects, feedback and flow impacts from working solutions, and inviting stakeholders to participate in the process.

Brainstorm all of the possible sustainability issues facing a company now and far in the future.

Prioritize the issues.

  • Is there a direct financial impact? If there is risk, how likely is the impact?
  • Is there a direct environmental impact? If there is risk, how likely is the impact?
  • Is there a direct impact on the community? If there is risk, how likely is the impact?
  • Is the issue strategically important?
  • Is it covered by legislation now, or likely to be covered in the future?
  • Is it seen as a social norm?
  • What do stakeholders such as shareholders and competitors think?

Create working solutions to priority impacts, considering how implemented changes may affect other aspects of the business, environment, and community.

Embed working solutions to the priority issues into business as usual.

Share the materiality assessment process and results with the company internally as well as with stakeholders. Measure success of working solutions with Key Performance Indicators (KPIs), and incite stakeholders to comment on and engage with the materiality assessment process.

Return to the start and go again- this is a constant process that a business should cycle through one or more times per year!