Mastering Materiality Part 3: How to complete a Materiality Assessment that adds value

A Materiality Assessment is a process that helps organizations identify, validate and prioritize their most important ESG issues.

With so many issues to address and potential stakeholders to involve, undertaking a Materiality Assessment has historically been neither quick nor easy. Organizations faced the complex challenge of researching and comparing the significance of a huge number and diversity of topics—from air pollution and water use to modern slavery and board diversity—while ensuring that a diverse and balanced set of stakeholder voices and perspectives were captured.

To prioritize and validate material topics, internal and external stakeholders were selected, surveyed, interviewed or participated in a workshop and the results weighted— often in a somewhat pseudo-scientific and less-than-transparent manner—to rank their relative significance. The resulting priority issues were then manually plotted into a materiality matrix. 

The process was long, complex, and expensive.

Time for a reset

With ESG becoming a must-have for all businesses, spurred on by regulations like the EU Corporate Sustainability Reporting Directive (CSRD) and uptake of the Task force on Climate-related Financial Disclosure (TCFD) recommendations, it’s time for a rethink of legacy materiality approaches. As the number of reporting entities burgeons, companies need access to smarter, quicker, more cost-effective materiality solutions, so they can focus resources on the endgame of actually managing their impacts.

“Undertaking a materiality assessment is neither simple, scientific nor cheap” says Julia Höglund, Director, ESG and Sustainability Strategy at SB+CO. “It is a process that requires extensive research, internal and external stakeholder dialogues, surveys, management workshops and sign-off by the board of directors.” Moreover, outsourcing this process to external consultants often comes with a hefty price tag of $30,000-$100,000 for a single point-in-time report.

With 49,000 companies in the EU now preparing for compliance with CSRD, which stipulates a double materiality lens, Höglund estimates an approximate €5 billion could be spent on Materiality Assessments within the next 2 years—a big potential drain on resources for limited sustainability budgets.

Where Höglund does see value in ESG materiality going forward is through simplified, high-level assessments based on “quicker prioritization exercises with some stakeholder engagement to identify priority E, S and G issues for the business.” 

Materiality Assessment 2.0

Ansarada’s Materiality Assessment is a world-leading digital Materiality Assessment solution that allows organizations to engage stakeholders in high-level prioritization of materiality issues—without the extensive manual work and high price-point of traditional methods.

Developed in partnership with attested corporate sustainability experts One Stone Advisors, and informed by global ESG frameworks including SASB and GRI, it is a streamlined materiality solution that digitizes your materiality journey at a fraction of the time and cost. The outcome is a tailored set of priority E, S and G issues for your organization, presented in a comprehensive Board-ready report, to inform and guide your sustainability strategy going forward. Here’s how it works.

5 steps to a credible ESG Materiality Assessment

1. Define the organization's industry, boundary and location
2. Internal stakeholders rate the significance of key topics for the organization
3. Engage relevant external stakeholders to rate the significance of key topics
4. Analyze combined results and prioritize material topics
5. Improve and report on ESG performance 

Step 1: Define the organization's industry, boundary and location

Start by updating your profile and tailoring it specifically to your organization to deliver a customized experience to your stakeholders. Choose your industry group, sector focus, organization type, and your individual role and stakeholder group. 

Next, create your first assessment. Give it a title that will be easy to identify and reference later and set ‘open’ and ‘close’ dates for stakeholder input. 

At this stage, you’ll be able to preview the ESG material issues your stakeholders see by expanding out each section. The initial list includes those issues pre-identified for your industry. These cannot be edited or removed, but you can add more issues as needed.
 

Step 2: Internal stakeholders rate the significance of key topics for the organization

Kick off your Materiality Assessment with a free internal survey. You can add in internal stakeholders like your Board, Senior Management, and Employees, and share the assessment with them at no cost.

The more honest and thoughtful a stakeholder’s responses are to the Materiality Assessment, the more useful they are to the organization. The following guidelines can help when answering questions:

 

• Understand the issue and read the full description. Consider the material issue and how it relates to your experience and perception, within the context of the organization.
• Understand the scale. On a scale of lower to higher, each internal stakeholder rates the issue’s significance to them in the context of the organization. If they are unsure or undecided about the issue’s significance, they can select the middle of the scale. If they feel strongly that the issue is extremely significant—or not significant at all—they should mark it at the lowest or highest ends of the scale. This will provide the most accurate feedback to the organization.
• Don’t overthink it. The purpose of the assessment is to get honest feedback, so internal stakeholders need not worry overly about what the ‘right’ answer is. Instead, they should give their most intuitive response. 

Step 3: Engage relevant external stakeholders to rate the significance of key topics

Next, engage your external stakeholders. It is important to seek feedback from a wide range of stakeholder groups to ensure that a variety of views are heard. This ensures that your final report reflects a holistic view of your organization’s priority risks, impacts and opportunities.

The choice is yours, but we recommend at a minimum reaching out to customers, community, suppliers and investors. A key decision in the Materiality Assessment is choosing how many subgroups and respondents to invite within a given stakeholder group. For example, if you have 10,000 customers, do you send it to all of them or just the biggest three? Do you focus on top tier suppliers or dig deep and wide into your value chain? Handy tips and guidance are available in the Materiality Assessment FAQs to guide you and you can learn more about narrowing down your list of stakeholders to get the most robust, diverse, yet balanced set of responses in your assessment here. 

Once you have populated your stakeholder groups and optional subgroups, it’s time to send out your assessment, and the tool makes this a breeze by generating emails to your chosen stakeholders and securely sharing a link to your Materiality Assessment survey. Billing commences at this point, once your first external stakeholder is invited to take the survey. External stakeholders include any individuals added into the community, customer, investor or supplier groups. 

You’ll immediately be able to track responses and progress, including which surveys have been sent, which ones have been completed, and which ones remain outstanding so you can follow up. 
 

Step 4: Analyze combined results and prioritize material topics

Once all responses from your stakeholders are in and the assessment is closed, a comprehensive, individualized results report will be automatically generated for you. The combined results from your internal and external stakeholders are revealed in a Materiality Matrix showing how each topic ranks in terms of its perceived significance to the organization and its stakeholders. This matrix is a snapshot in time of the topics rated as having higher, moderate or lower significance. It enables your organization to become aware of the ESG topics deemed most material, develop or sense-check strategy and move forward with confidence in managing, measuring, improving and reporting on your ESG performance. 

Learn more about interpreting your Materiality Matrix results here.

Step 5: Improve and report on ESG performance

Your Materiality Assessment results report is a Board-ready report and provides essential information for setting or refreshing your ESG strategy, demonstrating commitment, building trust, increasing credibility and creating tailored communications on the matters your stakeholders care about. View a sample Materiality Assessment results report here.

It will also help you spot gaps and opportunities for better alignment with emerging expectations on the ESG risks and opportunities that matter most—and pinpoint areas where follow-up deep-dive stakeholder engagement could add value. This can now all be done in a matter of weeks—and at a fraction of the cost—of traditional, legacy, manual assessments. 

As Julia Höglund concludes, “Materiality does have a role to play, but the focus should be on improving the process and using it with more judgment.” Our new solution is designed to do just that, by taking the pain out of the process and delivering greater value—for you, your shareholders, and your broader stakeholders. 

With your Materiality Assessment report complete, you are one step closer to turning these valuable insights into a comprehensive and cohesive strategic action plan focused on real-world impact and improvement. Ansarada’s ESG Strategic Action Plan seamlessly integrates your sustainability priorities into a clear, robust and executable plan that integrates with your core business strategy. It also aligns with the UN’s Sustainable Development Goals and includes workflow tools for assigning tasks and automating progress tracking. Sign up here for more information.
 

A revolution in Materiality Assessments

Undertaking a traditional Materiality Assessment can be a complex and challenging process for organizations. Due to the wide range of potential issues and the number and variety of stakeholders involved, materiality can be time-consuming and costly. Without robust and user-friendly tools to guide and streamline a very manual process, it can take up to 6 months and cost anywhere between $30k to $100k. 

In partnership with ESG experts One Stone Advisors, Ansarada has released a state-of-the-art digital Materiality Assessment, so organizations can start their ESG journey at a fraction of that time and cost outlay. Designed with leading practice structure and processes built in, the Materiality Assessment builds on recognized ESG frameworks. The output is a comprehensive, Board-ready report, with clear next steps to take and a blueprint for an integrated ESG strategy moving forward.