What does ESG materiality mean?

It’s all right if this happens. ESG is vast, and the terms around it evolve. 

Here’s a short guide explaining ESG materiality and why it’s essential.

It’s the way to decide what matters and what doesn’t when it comes to ESG. 

It’s a metric showing the importance or relevance of a given issue to a company’s ESG strategy. Generally speaking, the more relevant the issue, the higher the materiality. 

Often, ESG materiality depends on money. Companies will analyse every issue’s materiality relative to the financial impact on the company.

Because ESG is too vast to pursue every principle at once. 

ESG will always mean different things to every company. Their focus areas will vary depending on their industry, local laws, competition, and the borders they operate across. 

ESG materiality is a way to prioritise what’s essential for an organisation’s success and what makes little to no difference. Such priorities show that companies are thinking smartly about ESG.

They conduct ESG materiality assessments. 

How companies conduct these varies from place to place, but the common trend is to assess what’s important for the company against what’s important to internal and external stakeholders. The overlap between the two is where companies will identify issues of high materiality, and these issues will be prioritised. 

It looks thorough and far-reaching. It analyses every relevant issue and considers its impact on business strategy, all stakeholders, and the company’s long-term viability. 

The process of identifying material ESG factors usually involves:

• Stakeholder engagement – including communication with investors, customers, employees, and communities to understand their ESG concerns and expectations.
• Impact assessments that will give clarity on every issue concerning ESG. 
• Creating a materiality matrix plotting the significance of each ESG factor based on its potential impact on the organisation and its importance to stakeholders. It essentially gives materiality a numerical and graphical life, making it easier to inform decisions.
• Integrating the findings into strategy, thereby ensuring all high-materiality issues are considered in business plans, risk management, and reporting.

First and foremost, it brings unrivalled potential for strategic focus. It tells companies what matters most using logical processes, giving confidence to all involved. 

Additionally, because ESG materiality work involves a lot of stakeholder engagement, it has the potential to boost communication lines between all stakeholder groups – something that is often crucial for the success of a company.