ARTICLE • 5 min
There are many ways to run a double materiality assessment. Keep in mind, no one approach is more correct than the other. A framework for double materiality is provided by CSRD, but it leaves a lot of discretionary room for implementation. Companies and consultants will use different approaches, but expect the double materiality process to include the steps laid out in this blog article.
Before diving in, it’s important to highlight two key areas that should be carried throughout the entire assessment process:
Stakeholder Engagement: Engage internal and external stakeholders every step of the way. Gather insights, qualitative and quantitative data, and collaborate with your stakeholders.
Process and Methodology: It’s crucial to “show your work” in a double materiality assessment. Document everything - your thoughts, sources, how you engage your stakeholders, what your considerations were, etc.
A step-by-step guide to run a double materiality assessment
The first step, setup, is arguably the longest and most important step. Let’s walk through each item.
Internal Alignment
Your company decided it’s time to run a materiality assessment, but who is taking the lead on running it? Will you be a lone ranger in this project? It’s best practice to establish a task force (or steering committee) that involves cross functional engagement. The broader the group, the better. It’s important to get ownership across the business because it allows you to get better insights and engagement. Cross functional engagement is a prerequisite for doing a quality materiality assessment.
Identify Stakeholders
As a task force, map internal and external stakeholders. Customers, leadership, and employees can be easily identified but don’t forget to consider silent stakeholders (ex: future generations). This list can and will
evolve throughout the assessment.
Value Chain Assessment
Completing a value chain assessment will help with stakeholder identification and mapping. Look upstream, downstream, and at core business activities to get a sense of what the entire value chain is. Engage with functional heads and external stakeholders across the entire value chain. This exercise will help you identify stakeholders you might not have thought of.
Set Materiality Thresholds
Next you must define and record a sound materiality methodology. You don’t want to go through the entire exercise, end with 20 topics, and not know how to cut down/pick material topics. If you set and define materiality thresholds early, you’ll automatically know what is material and what isn’t in the end. Your leadership and finance team can help set thresholds as they may have experience doing so or ideas for metrics.
Education and Change Management
Identify relevant education initiatives that might have to take place to make a sense of ESG understanding across the organization so they know why you’re running a materiality assessment and what the outcomes will guide. If they know the process is happening and why, then your internal stakeholders will get more involved.
The collection steps are not in a rigid order, they reinforce each other so you end with a list of topics that are backed by your stakeholders.
Sustainability Topics
Your task force will gather a long list of relevant sustainability matters using the value chain mapping. Consider the sustainability areas likely relevant to your organization’s business activities and capture all associated impacts, risks and opportunities. Please note, you are not determining if something is material yet.
Impacts, Risks, & Opportunities
Next link the sustainability topics you’ve listed to (potential) Impact, Risks, and Opportunities (IROs). Starting with impacts is typically the easiest because they often lead you to risks and opportunities. Then go back and think about risks and opportunities separately, as some topics may not be linked to impacts.
Collaboration with leadership and functional heads is key here, the more people who are involved in this process the better.
Stakeholder Engagement
Engage internal and external stakeholders to gather evidence on the materiality of the identified long list of impacts, risks, and opportunities for your organization. This long list should encompass the entire value chain and include many perspectives.
Additional Data Sources
You can collect additional IROs from third party data sources and other experts to really shape your list. Consider benchmarking with competitor and peer data, looking at current trends, and industry insights.
When conducting analysis, you have to determine a fit-for-purpose approach. It might not be perfect, but that’s okay. The idea here is to show your work; it doesn’t necessarily matter if you get to the wrong answer, it matters that we know how you got there.
You can review the CSRD IRO scoring requirements to get inspiration for creating your own fit-for-purpose scoring methodology.
IRO Scoring
Your task force has to figure out a fit-for-purpose approach to score your IROs and determine which have the highest impact.
Maybe you’ve done stakeholder interviews and surveys, you must then describe how the qualitative insights and quantitative methodology is applied in your scoring. Qualitative insights are fundamental in determining materiality, but a quantitative methodology offers a more repeatable process that can mitigate bias, enable comparability across outputs, and facilitate clear documentation.
Show your work here. Explain how you’re doing that, what you’ve taken into consideration, and what you’d improve upon next time.
Apply Materiality Thresholds
Apply the criteria and thresholds determined in step one (setup). The thresholds are set so you can automatically determine what topics are material to your business. This is when you’ll consolidate the list of IROs/topics into a shortened material topic list.
Review Material Topics
Review your shortened material topic list with your team, task force, steering committee and decide if any tweaks need to be made. Additionally, engage your leadership team in the review process. Determine your fit-for-purpose approach and ensure it’s a repeatable process for your next materiality assessment.
Describe the Process
Your report should include a section on methodology. Utilize your process documentation here. Show what you’ve gone through, what your thoughts were, what you might change next year. The documentation of your process is so important.
Report the Outcomes
Report your material IROs and topics determined in step three. Once you’re left with a list of material topics, you must make sure to describe your next steps - What are you going to do with this information? What goals are you going to set?
Assurance
Not all companies are required to do assurance, but if you are, start the process. Provide your auditor with all of the documentation from your assessment - staying organized and keeping documentation in a centralized location will make the assurance process easier.
*Make sure to find out in step one (setup) if you are required to assure your materiality assessment. If you are, speak to an auditor early and often to understand their requirements and ensure you are meeting them throughout each step of the assessment process.
In conclusion, there are many ways to conduct a materiality assessment. Your team must determine the best fit-for-purpose approach for your organization. Ultimately, it’s about your process and showing how you got to your results.
If you’re looking to conduct a materiality assessment and want a way to streamline the process, please contact us! Our double materiality software offers a fast, simple, and affordable approach to completing the steps outlined above.
Whether it’s a public company, a private company, or a charity, Socialsuite has the right solution for you.
