Materiality assessment

Understanding which ESG issues are priorities for your business is important to drive both sustainability and profitability.

A materiality assessment is a tool that can help you focus resources on the areas that create the most long-term value and build a sustainability strategy that aligns with your goals.

Chrystal Healy, Assistant Vice President, Corporate Sustainability at BDC, adds that by assessing key issues, companies can better understand the risks and opportunities they face. 

What is a materiality assessment?

A materiality assessment is a tool for identifying and prioritizing the most significant ESG issues impacting your business. Material issues vary based on your industry, location and business model. For example, a manufacturing company may find energy usage and waste management to be its most material issues, while an IT firm will likely focus on cybersecurity and data protection.

Single vs double materiality?

“Single materiality” looks at how ESG risks and opportunities affect a company’s financial performance. In contrast, “double materiality” considers both how sustainability issues affect a company financially (outside-in) and how the activities of a company impact society and the environment (inside-out). This concept is gaining traction in Europe due to requirements under the Corporate Sustainability Reporting Directive (CSRD). Any Canadian business operating in Europe should evaluate if they are subject to the CSRD.

What type of materiality assessment should be adopted and when?

Deciding between single and double materiality depends on a business’s goals, stakeholder expectations, and regulatory environment. Single materiality is simpler and quicker to implement, making it ideal for companies more concerned with financial metrics and investor interests. Double materiality is a more comprehensive approach that aligns with global sustainability goals. However, it is more complex as it extends beyond the operations of a business.

Businesses may start with a single materiality assessment and evolve to double materiality as they progress on their sustainability journey. Regardless of type, a materiality assessment is typically conducted during strategic planning and updated regularly to reflect any significant changes to operations, regulations or the marketplace. The publication of a first sustainability report often triggers a company to conduct a formal materiality assessment to identify the most relevant issues to disclose.

How is a materiality assessment relevant to entrepreneurs?

A materiality assessment is a relevant tool for businesses looking to better integrate sustainability into their business strategy and improve stakeholder engagement. By integrating the findings of a materiality assessment into your strategy, you’re not only improving your sustainability performance but also positioning your business for long-term success.

• Strategic allocation of resources
  Focus on the issues that matter most to your business and your stakeholders.
• Manage risks and opportunities
  Protect your business by identifying potential regulatory changes and other risks and seize opportunities by understanding market shifts and prioritizing customer concerns.
• Build stakeholder trust
  Demonstrate to stakeholders—employees, customers, investors and regulators—that you’re actively managing the ESG issues that matter.

How to conduct a single materiality assessment

Conducting a single materiality assessment doesn’t have to be overwhelming. You can follow some simple steps to get started.

1. Define objectives  

Start by determining why you’re conducting the materiality assessment. Clarifying your goals will shape the rest of the process.

• Are you looking to meet reporting requirements?
• Are your customers or investors asking for sustainability information?
• Are you developing your sustainability strategy?
• Who is the key audience of the assessment?

2. Form a working group

Engage key employees from different departments, such as operations, finance, HR, and marketing. A group of employees from across the business will help identify the most important ESG issues based on their expertise.

3. Identify potential material ESG topics

Compile a broad list of potential ESG topics relevant to your business. These might include climate change, labour practices, diversity, cybersecurity or waste management. To identify relevant topics, you can review what your competitors are doing, review industry trends and research global industry standards, such as the Sustainability Accounting Standards Board (SASB). Gather necessary resources, such as internal or external data, where available.

4. Identify and engage stakeholders  

Prioritize stakeholders with the greatest influence by evaluating how they affect your business and how your business affects them. This can include customers, suppliers, investors, employees, advocacy groups and even local communities.

Use surveys, questionnaires and meetings to gather insight from your stakeholders regarding relative importance of identified ESG topics.

“Small and medium-sized businesses can benefit from having conversations directly with their partners and can learn a lot about what matters are important to them,” says Healy. “This is also a great way to collaborate with partners and build strong relationships.”

5. Assess and prioritize 

Once you’ve gathered stakeholder feedback, rank the ESG topics based on their importance to your key stakeholders. They consider the importance of each topic to your company in terms of strategy, risk management, market opportunities, and product development and how it affects your company’s ability to create value.
Focus on the overlap: The issues that are critical to both your business and their importance to your stakeholders are your material topics.

The results is often shown using a materiality matrix, a visual representation of the prioritized issues, which informs sustainability strategy and related reporting. The horizontal x-axis indicates the materiality of issues for a company, while the vertical y-axis indicates the materiality of topics for the company's stakeholders.

Example of a materiality matrix

6. Integrate findings into the sustainability strategy

After identifying your key material issues, it’s time to integrate them into your sustainability strategy. This means setting goals, developing action plans and allocating resources to address these priority issues.

Next step

Discover how the B Corp assessment can help you examine your current practices and equip you with a more sustainable business.