Materiality Assessment for Businesses
Sustainability is a prominent topic of discussion in today’s market as more and more people become invested in how businesses conduct themselves sustainably. It is, therefore, important for companies to showcase their journey toward becoming a more sustainable businesses. However, sustainability is an all-encompassing subject matter that entails difficulty in terms of managing and measuring a business entity’s contributory efforts in achieving the sustainability agenda.
Sustainability covers various issues that stem from three main pillars known as environmental, social, and governance (ESG). The figure below illustrates this, with various examples that fall under each ESG pillar.
To better navigate sustainability, businesses can narrow down the ESG concerns to specific subjects that they deem material to their operations and are also important to their stakeholders. Known as the material sustainability matters or material matters, these specific topics can vary from simple topics such as electricity and water consumption to more serious concerns such as climate change and legal compliance.
From these material matters, businesses can then conduct the materiality assessment to produce a materiality matrix. The materiality assessment and the matrix enable companies to prioritise their material matters according to the degree of importance. This is done by ranking each material matter based on their relative significance to the company’s business operations. The materiality assessment also considers the opinions of the stakeholders, such as investors, shareholders, customers, regulators, suppliers, and more importantly, their employees. The figure below shows the steps involved in a materiality assessment.
Assessment
The materiality assessment exercise reveals useful and actionable insights into the ESG priorities of both the business and its stakeholder. After ranking each material matter according to its importance to the business and to the stakeholders, the materiality matrix, as illustrated below, is then produced, showing overall rankings of each material matter.
The benefits of an effective materiality assessment can be far reaching as it provides businesses with the solid foundation for a continuing engagement with their stakeholders with whom they share the vision for a sustainable future.