Materiality assessments are growing in quantity but not always in quality. In this Special Report, we explain how you can avoid the pitfalls of meaningless materiality assessments and stick to best practice.
As anyone just getting started in the world of sustainability quickly learns, the materiality assessment is the foundational building block that kicks off any organization’s sustainability journey. It is the backbone of reporting and strategy building, and it is one the first key activities that Telesto recommends organizations at the Taking Stock stage of the maturity curve take to launch their sustainability journeys.
But what exactly is a materiality assessment?
Put simply, a materiality assessment is an exercise which helps organizations – through surveying, convening, and otherwise polling key stakeholders – to identify, evaluate, and prioritize which sustainability-related topics they care about (i.e., what is material to them). A materiality assessment, therefore, helps organizations figure out where to focus their sustainability efforts and narrows the scope of topics across which to track progress. Organizations are also encouraged to periodically refresh their materiality assessments (best practice suggests doing this once every three years), adjusting their priorities as they and the world in which they operate evolves.
And materiality assessments are becoming an increasingly integral feature in the business world. Nearly 75% of global Fortune 250 companies use materiality assessments. Furthermore, large companies which have yet to convert to the practice may soon be legally obligated to do so: in the coming months, both American and European regulators will be announcing which materiality disclosures will become mandatory. And by 2026, regulators have made clear that every company will be expected to show some form of materiality reporting. For many in the sustainability space, this should be cause for celebration.
There’s a catch though: many organizations are doing their materiality assessments wrong.
To start, many organizations conduct their materiality assessments with a compliance and reporting mindset, executing them as if they were box-ticking exercises. They worry more about how the output looks on paper than whether there is actual substance to what the materiality assessment reveals. The end result of such a tendency is that the materiality assessment becomes a piece of creative and colorful PowerPointing instead of a legitimate element of the organization’s strategy.
Second, many organizations conduct their materiality assessments in a vacuum. Instead of considering how sustainability priorities (e.g., reducing CO2 emissions) measure up against other, non-sustainability priorities (e.g., offering same-day delivery of products), organizations are inclined to compare sustainability priorities only against other sustainability priorities. Further exacerbating the vacuum nature of the exercise, many organizations also frequently neglect to involve external stakeholders (e.g., customers, business partners) in their assessments, opting only to engage with more conveniently contacted members of their own organization.
The result is a biased and incomplete picture of reality; in short, a completely meaningless materiality assessment.
But all is not lost. Organizations who want to do right by truly embodying sustainability can do so by following six tried-and-true guiding principles
But all is not lost. Those who want to do right by truly embodying sustainability can do so by following six tried-and-true guiding principles derived from best practices we have seen applied at industry-leading organizations:
Leverage the process to build internal buy-in. A materiality assessment is a unique opportunity for employees to feel heard on the organization’s broader impact and purpose. To make the most of this, ensure that employees understand the purpose of the exercise, its strategic importance, and that responses are anonymous. Creating space for anonymous feedback can build further buy-in while also providing additional insights to leadership. Playing back the results to employees also demonstrates that leadership is actually listening and integrating employees’ inputs into the organization’s strategic direction.
Partner with HR and legal. Collecting input from employees across the organization requires coordination with HR and offers an opportunity to leverage their lessons learned on how to drive participation and get meaningful cuts of the data. Legal can assist in ensuring that sensitive topics, such as the right to organize, are surveyed in a manner consistent with the company’s policies.
Translate sustainability speak into common parlance. Though terms like “Scope 1 emissions” and “human rights audits” may be evident to long-term sustainability practitioners, such terms are not always well understood by the general public. To address this, ensure that the language when engaging stakeholders uses terms that everyone can engage with. Results can always be translated back into official sustainability terms for the final report.
Tailor your approach when engaging different stakeholders. For example, include multiple language options and smartphone options in employee surveys, print QR codes around employee areas to drive participation, and conduct one-on-ones with senior leaders and/or technical experts to garner deeper insights and build broader buy-in.
Don’t forget external stakeholders. Strategic partners – and especially sustainability experts with such partners – can provide an important external lens of the company’s impact. Engaging them not only strengthens the veracity of your materiality assessment but also provides an opportunity to discuss sustainability priorities with stakeholders across the value chain.
Leverage the results beyond just reporting and disclosures. For example, the HR team can use the results to identify compelling elements of the organization’s mission and vision to amplify employee retention efforts, while the Marketing team can highlight the organization’s prioritization of environmental and societal issues.
Although the general tendency has been for organizations to execute their materiality assessments poorly as if they were perfunctory exercises, it does not need to and should not be this way. With evermore organizations needing to integrate materiality assessments into their regular operations and strategy, it becomes critical that they be done well. Otherwise, it becomes a squandered opportunity for the organization and the planet.