your materiality FAQs, answered, part 2
published 6.13.24
Considerations for Double Materiality
Clients are asking if there is a standardized way to conduct a materiality assessment. The short answer is: no.
EFRAG’s Materiality Assessment Implementation Guidance states that the ESRS does not mandate how to design or conduct a materiality assessment because no single process can capture all types of economic activity, organizational structures, location of operations or upstream and/or downstream value chains. The guidance goes on to say that each company should design a process that is “fit for purposes based on its specific facts and circumstance” (i.e., the ‘how’ is up for interpretation).
So, while the “how” is hotly debated and best practices are evolving, here are six considerations for double materiality that will help set you up for success:
Who should be on the double materiality working team?
Your team should never be a team of one. Efficiently run materiality assessments have an available and engaged working team—three to five people from across the organization with internal sway—and one true project owner. These teams include people with sight lines and decision-making power related to financial risks, strategic opportunities and planning, as well as the company’s impacts on people and the planet. This can include individuals from the finance team, investor relations, legal or risk, human resources, supply chain, sales or product development. It’ll look different from company to company.
You’re also looking for leaders skilled at building internal buy-in and translating the value of this exercise into language anyone across the business can understand. Yes, your materiality assessment will inform disclosures and help you meet regulatory requirements, but more so, the outcomes should guide your strategy and business decisions moving forward. Strong internal leadership will ensure that end result.
What’s the value in working with a third party?
External consultants enhance credibility and rigor and decrease bias. Your third-party partner should ensure your company is not simply listing well-managed impacts, risks and opportunities, solely referencing generalized industry trends or country-level inputs, collecting superficial stakeholder data, listening to an echo chamber or missing emerging potential material trends.
Your external partner has fresh eyes and broad knowledge of the ESG landscape. Internal teams shouldn’t be expected to keep up with it all (you’re juggling enough as it is).
How many topics are assessed for impacts, risks and opportunities?
The number of ESG topics to assess can vary depending on where you are in your materiality assessment cycle and evolution as a company. With your initial or ‘long’ list of impacts, risks and opportunities, you are going for breadth and depth, ensuring no critical matters are overlooked while capturing entity-specific details and emerging industry trends and risks.
We’ll often start with lists of 35-100+ topics, pending where in the materiality assessment lifespan a company is (i.e., is this the first assessment or the fifth) and the complexity of its value chain.
Sources to consider when forming your ‘long’ list: (1) your company’s sector, industry and where it operates; (2) the scope of its value chain and the impact of its products, services and experiences; (3) the needs, interests and expectations of stakeholders; (4) the standards and frameworks your company applies (e.g., ESRS, GRI, ISSB, etc.).
Creating your list is the first step; each subsequent step narrows, clarifies, and enhances the details included in your final list of material sustainability matters.
Is engaging stakeholders a must?
While prior materiality assessment practices may have passed without engaging stakeholders—with today’s ESRS requirements, that is no longer possible. (And at qb., it’s always been a HUGE must).
CSRD standardized the role of stakeholder input in materiality assessments by asking people to identify a company’s most significant impact on people and the planet and the most significant sustainability risks and opportunities for the company—a needed departure from the overly simplified ‘rank these topics in order of importance’ exercises.
Through your stakeholder engagement, you will more deeply understand your company’s impacts and opportunities and obtain input and feedback on potentially new sustainability matters. Your engagement will also inform the assessment of impacts, risks and opportunities in subsequent steps.
How do I know which stakeholders to engage with?
Not all stakeholders can compare and assess a range of sustainability matters from an ‘outside in’ and ‘inside out’ perspective. This is why who you invite to participate and how you engage them is crucial to any successful double materiality assessment.
At qb., we approach stakeholder engagement with an inclusive and accessible mindset. We engage with internal and external stakeholders—from employees to customers, nonprofit partners and more (stakeholders are tailored to your value chain)—and we help clients finalize this list during a stakeholder mapping exercise.
We collect stakeholder data through interviews, surveys and desk research. Our process is designed to paint a comprehensive picture of your business and yield meaningful insights that will inform your material topics as well as your impact, risk and opportunity analysis.
Our process values employee perspectives across levels, roles and locations within a company (read: not just senior leadership). For example, members of employee resource groups may not have leadership as part of their title, but they do have both functional and cultural knowledge that is valuable. We amplify voices that may not have the obvious title to participate in ESG conversations—but who can provide deep reflections and insights on potential material impacts, risk and opportunities. These perspectives often reveal how sustainability matters can be leveraged and managed and what a company’s true influence can be.
Throughout our stakeholder engagement process (whether it’s a survey or an interview), we maintain a thoughtful, people-first approach. We conduct interviews with active listening and one-on-one candid conversations (never recorded) to elicit honest responses. We believe that nuanced insights from interviews often surpass what can be obtained through automated data scraping.
And remember, data collection for the sole purpose of disclosure isn’t the ultimate goal. The bigger vision should be progress toward stakeholder trust and an active ongoing dialogue to inform strategy, policies and actions.
What is the final outcome?
You’ll report! And you’ll build. For each sustainability matter that has been identified as material, CSRD requires companies to disclose the measures in place to manage environmental and social impacts so that, over time, companies will publish not only the metrics and targets set for each material topic but also the policies and action plans to achieve these goals.
A good materiality assessment lends itself to strategy building, disclosure and reporting. This process ensures that resources are invested wisely, goals are set strategically and accountability is maintained through regular, decision-useful reporting.
This work is cyclical—you continually develop and refine your strategy, report on progress and maintain your efforts year after year. It’s important to understand that material topics will evolve over time as stakeholders and business priorities change. This is why conducting a materiality assessment periodically (at minimum every 2-3 years or when your business significantly changes — whichever happens first), is essential.
Considering conducting a double materiality assessment and want to learn more? Reach out to Sam at sam@consultqb.com.
by Sam Hartsock
Cofounder + Partner
