Explained byBCG

Conduct a sustainability materiality assessment

How conducting a materiality assessment can help your company understand its climate priorities

Sustainability materiality assessments can help shape a company’s strategy in terms of sustainability performance and climate action. While reaching net-zero will primarily involve reducing emissions, we recommend looking at all sustainability metrics, as these factors are often interrelated with potential trade-offs of which your organization should be aware. This materiality assessment should help you do so.

These assessments are essentially stakeholder surveys conducted to understand how those within and outside of your organization regard the importance of various sustainability categories to your business and associated performance. We recommend that companies conduct such assessments every 2-3 years and compare to prior assessments to identify changing trends. Additionally, we recommend the inclusion of social and governance considerations in the materiality assessment, as there can be potential trade-offs among ESG topics and planetary boundaries.

Topics often considered within materiality assessments include:

  • Energy

  • GHG emissions

  • Water

  • Biodiversity

  • Waste

  • Air pollution

  • Diversity, equity & inclusion (DE&I)

  • Community engagement

  • Affected communities

  • Others, including industry-specific concerns

You can typically expect to assess up to 15-20 topics, which you can compile via stakeholder assessments supplemented by consultation with experts and market research.

We recommend the use of a double materiality approach. Double materiality is defined as a union of “impact” (potential impact that your company may have on a sustainability category) and “financial” (effect of the sustainability category on your business) materiality. This means including both the organizational impact on people and the environment, as well as related internal risks and opportunities. Both drivers should be considered to understand how your business can affect and be affected by different categories. This approach is broadly outlined in the regulatory requirements under the EU Corporate Sustainability Reporting Directive (CSRD), which take effect starting in 2024. CSRD requires the disclosure of a number of ESG topics using this method, and your company can use this method to assess “financial” and “impact” materiality along many criteria.

Assessing the relevance of the sustainability categories is often complex and may require some level of judgment to supplement any concrete analysis. However, a useful approach is to order your stakeholders by importance and weigh their viewpoints on materiality of the different categories accordingly. Figure 6 shows a relatively typical ordering of stakeholders by importance, where customers and management have the most influence upon the materiality assessment. It would also be prudent to adjust your level and type of engagement with them (e.g., interviews for management, online/in-store surveys for customers) to ensure viewpoints are properly gathered.

Figure 6: Sample relevance model to weigh relative contribution of stakeholder groups (1), p4.

One way to visualize a double materiality assessment is as a matrix of topics organized along x- and y-axes that represent “financial” and “impact” materiality, respectively (see Figure 7); for example, by using a five-level scale of relative importance.

Figure 7: Example of a double materiality assessment matrix in practice (2), p6.

Topics that are of high importance on both axes are likely to be of highest priority, with priority decreasing as importance drops along either axis. Based on this, you can, for example, sort topics into four categories:

  1. Higher impact: Topics that should receive greatest focus, with reason for transformational change

  2. Enablers: Topics that require some action

  3. Areas to monitor: Topics that require compliance from the perspective of key stakeholders (e.g., investors, board members)

  4. Lower impact: Areas that may not require any action yet