Stakeholders and investors are increasingly questioning companies’ commitment to sustainability efforts and other ESG (environmental, social and governance) initiatives, as well as how they manage their workers and vendors. The answers to these questions are critical.

Your business’s material concerns must represent the company you have today, not the company you were in the past.

When your company’s scope expands significantly, it’s essential to evaluate your material concerns. If you’ve sold a company unit, a whole slew of concerns that were formerly top priorities may no longer be so.

Even if you haven’t had a formal structural change, expanding into a new market or developing a new product line will impact which concerns are most important.

To ensure that these changes don’t have an overwhelmingly negative impact in the areas of ESG, you should conduct a materiality assessment.

What Is a Materiality Assessment?

An ESG materiality assessment allows your company to quickly report on its present situation and plan future activities while keeping your company goals and risks in mind.

Materiality assessments are structured exercises that engage stakeholders in determining the importance of environmental, social and governance concerns. The information gathered may then be utilized to inform strategy and communication, allowing you to create a more compelling sustainability narrative.

What Is Materiality?

In the scope of an ESG assessment, materiality refers to a single indicator’s usefulness and financial relevance as part of a company’s overall ESG analysis. Financial components critical to a company’s ESG strategy’s long-term performance are known as ESG materiality factors.

How Can Materiality Assessments Benefit Your Business?

Material concerns are rapidly being defined and prioritized in sustainability reporting requirements.

But with an ever-expanding range of standards and norms and an ever-growing list of concerns that corporations may solve, where should businesses concentrate their efforts to generate value?

When done correctly, the materiality assessment sustainability process can be beneficial.

A materiality assessment lets you expand on your prior evaluation and involve your stakeholders in new ways. A refresh might serve as a forum for directly engaging top executives to gather their perspectives on significant issues and achieve buy-in. It’s also a terrific way to meet people from the outside world who may help develop your company.

Modifying the process can be beneficial. Suppose the previous assessment gathered a diverse range of stakeholder perspectives. In that case, a new one might go deeper with experts on some of the significant concerns to learn more about how they anticipate you to address the challenges — and what the future may hold.

Reporting and disclosing is just the beginning. Effective materiality evaluations drive business transformation, creating benefits for both the enterprise and society.

Contributing to the Formulation of a Strategy

Identifying the company’s most critical concerns is critical for aligning sustainability with the overall strategy, increasing business resilience and capitalizing on new market possibilities.

Defending the Allocation of Resources

The team requires prioritizing since companies cannot do every task concurrently. A thorough methodology for determining priority concerns guides decision-making and strategic resource allocation when deciding how to disperse people, funds, and assets optimally.

Increasing Participation

Companies may develop trust and breakthrough departmental silos by incorporating important internal stakeholders in the materiality process, allowing them to collaborate to produce long-term value.

Buy-in from Stakeholders

A robust materiality process lays the groundwork for a conversation with external stakeholders. It may be a valuable tool for keeping track of impending concerns, boosting mutual understanding, and strengthening relationships and reputations.

Focusing the Content and Format of Reports

Companies acquire a better knowledge of how to properly structure their reporting to offer focused communication on the problems that matter the most to the company and stakeholders through the materiality process.

How to Conduct a Materiality Assessment

A materiality assessment evaluates how an organization’s conduct and activities in a specific industry or sector are regarding the environment, the social value of the environment, or how the environment is managed. Features of materiality analysis include:

  1. Recognizing that behavior is not free.
  2. Assessing a firm’s actions in a way that acknowledges that they can be both beneficial and harmful.
  3. Evaluating the impact of an organization’s actions, policies and findings.

This section sets out the steps to conduct a materiality assessment. Identify the elements of a materiality assessment, document the process used to arrive at these findings, and analyze the data. Here are seven steps to help you create your materiality assessment template:

1. Determine the key internal and external stakeholders.

Materiality assessments are most valuable when obtaining information from inside and outside the firm.

Initiate the materiality process by compiling a list of important stakeholder groups and then identifying crucial contacts within the groups who can offer valuable insight into your company’s sustainability plan. Consider both internal (executive leadership, directors, regional managers, workers) and external contacts (trade organizations, significant clients, NGOs) to assess various viewpoints across the value chain.

2. Start reaching out to potential stakeholders.

Once you’ve decided who you want to include, contact them as soon as possible to establish the tone and let them know you want their help.

Keep your pitch as brief as possible without omitting important information. Your goal should explain why the participants’ unique perspectives are valued and how you will utilize those perspectives to shape your company’s sustainability plan and business operations.

3. Identify and prioritize the key metrics.

Choose which sustainability indicators to assess once you’ve defined and connected with stakeholders so you can acquire the information you want and need. Common indicators include:

  • Community impact
  • Company turnover
  • Consumer issues
  • Greenhouse gas emissions
  • Labor statistics
  • Profit
  • Revenue
  • Waste management
  • Water stewardship

Establish which metrics are most significant to your organization using data you’ve previously collected, any suggestions stakeholders have supplied, research, and perhaps other sources such as:

  • The Global Reporting Initiative (GRI)
  • The Sustainability Accounting Standards Board (SASB)
  • Corporate Sustainability and Responsibility Europe (CSR Europe)

4. Create a materiality survey.

Materiality assessments should be official, organized interactions with stakeholders — not unstructured Q&As or workshops — to achieve the best outcomes. To make it easier for stakeholders to take the survey and for you to analyze the data, we recommend utilizing a typical survey style.

Use a graded scale to ask stakeholders to assess the relevance and effect of each indication you’ve identified in the survey. This will provide you with quantifiable data that you can study and visualize. To improve your results, provide extra room for written observations and comments.

Once you’ve finished with the content and design of your survey, you’ll need to put it into a form that’s easy to use and fill out.

5. Start collecting data by launching your survey.

Now that you’ve located your stakeholders, communicated with them, and written your survey questions, it’s time to ask individuals to do your survey.

Reconnect with your stakeholders and give a link to the survey as well as a deadline. Also, express gratitude for their desire to engage and offer to be a resource for any issues they might have.

6. Analyze and synthesize the results of the Materiality Survey.

You’ve put in a lot of effort to obtain these insights, and now it’s time to put them to use.

Examine all findings together, adding up the ranks for each reviewed indication. Based on the stakeholder group, you may construct different dimensions through various graphs that help you visualize trends and observations. Still, the final product should be a formal materiality matrix graph that shows how each indicator ranks in importance concerning stakeholder influence.

7. Use the data for actionable change.

While materiality assessments are clearly a form of stakeholder involvement, the process should not cease after the survey is completed.

Share your findings and conclusions with all of your stakeholders through an official sustainability report or alternative channels like a press release.

Sharing the results of your materiality evaluation can further discussion and participation in your sustainability initiatives. Accept comments from all stakeholders who see the findings of your materiality evaluation so that you may continue the dialogue after the assessment is completed. Incorporate your results into your overall sustainability strategy to develop communications plans for each group and communicate your company’s sustainability story more effectively.

While a materiality evaluation takes time, effort and money, it’s a priceless tool for gathering information that may help you develop a sustainable plan and provide meaningful reporting. Conducting a materiality analysis is also the first stage in our ESG strategy development process.

Ensure Responsible Sourcing with CBX Cloud

The working environment of a corporation shapes its priorities. This is particularly true in matters regarding ESG.

In recent years, employee and community health and wellness, company contingency planning and resiliency have been growing concerns for businesses. During the COVID-19 pandemic, companies struggled to retain a feeling of continuity and focus on safeguarding the health and welfare of their employees while juggling the challenges of managing remote personnel. Those entities that began focusing on these issues before the lockdown were better able to mitigate the disruptions.

Your materiality evaluation should be the same. It’s time to consider a materiality assessment not only if your company has been through a major change recently, but also if it’s possible major changes may be on the horizon.

Good intentions alone aren’t enough for brands and retailers that are serious about ESG. Brands and retailers need sophisticated technological tools to organize their efforts and to track where their products and downstream materials come from. CBX Cloud provides that visibility.

CBX Cloud’s Supplier Relationship Management platform offers a window into all your suppliers, from vendors to factories to raw material providers, while automating the collection of your suppliers’ information to ensure all their certifications are up to date. The platform automates supplier onboarding, ensuring that all your suppliers have agreed to your terms and conditions.

To learn more about how CBX Cloud facilitates traceability and supplier compliance, contact us today.

When running a business, you need to give your company every edge. The more information you have about your supply chain management through a material assessment, the more successful your business will be. CBX Cloud’s supplier management features can help you keep track of your objectives while speeding up your workflow. Request a demo today to learn how CBX Cloud can help your business ensure ESG compliance.

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