An investigation into materiality assessment practices

Abstract

An important aspect of sustainability reporting is determining which topics are material for an organization. These are topics for which it is important, or required, to disclose their strategy on. To determine these, an organization can execute a materiality assessment. This is a set of activities to determine which topics are material to an organization; which aspects should be disclosed, reported and managed. However, few methods for materiality assessment have a quantitative basis, making assessments subject to incompleteness and subjectivity. Furthermore, scientific literature provides little guidance, as most of the work is based on information disclosed in sustainability reports. This makes findings prone to reporting bias. To discover which activities are executed, a survey of semi-structured interviews is conducted across eleven firms. By mapping multiple materiality assessment methods and comparing them with each other, a set of fourteen general activities is identified, which are combined into five steps which serve as the basis of materiality assessment. This has been supplemented by a systematic literature search of scientific and grey literature. We found that materiality assessments begin with the identification of topics. These topics can be collected in multiple ways. For example, by analyzing the organization’s current sustainability strategy, topics emerge which are already being worked on. Some topics might be hidden in documentation of previous years, which were previously not material topics, but of which their materiality has increased this year. Furthermore, longlists such as the GRI indicator list or a longlist created by an organization itself can serve as a basis from which topics can be selected. After these topics are identified, a plan is created to assess them. This includes the stakeholders whose opinions are important to the firm, which instruments are useful to elicit information from them and metrics to assess materiality. Apart from measuring whether the stakeholders find the topic material, also, for example, the influence of the firm on the topic, or the impact of the topic on the firm can be determined. A third phase is the data collection from these stakeholders on these metrics. We found that surveys, interviews and focus group are common instruments. However, also (social) media provides a worthwhile contribution if there is sufficient tool support to analyze it. Next, these topics are ranked and this ranking is visualized in a materiality matrix. The final step is then to validate this ranking with management. This is done by discussing the results with (senior) management, as it is vital that these topics are tackled on a strategic level. Additionally, we discovered multiple problems in the industry, which are combined into a research agenda. The three most prominent issues are overcoming a gap in maturity between practitioners. Some organizations have very mature processes, while others do not. However, there is no step-by-step guide on how to start, i.e. which activities are the most important to do first, and how to expand this year by year. A maturity model could provide such a framework. Next, more research is required to determine parameter settings for a materiality assessment. There is no common number of surveys, little knowledge on longlists and how set these up. Finally, there is no flexible, accessible and transparent tool in the industry. Therefore, we have already created a prototype of a tool which is freely available to use1.