The Climate Of Business #99: The critical role of materiality assessments in business success

Climate Change Reality

• The World’s Largest—and Stinkiest—Flower Is in Danger of Extinction (WIRED )
• More than 4,500 deaths in England during 2022 heat (BBC )
• Portugal’s Gen-Z sues dozens of governments over climate change (Financial Times )
• New Orleans residents brace for salt water intrusion, Biden declares emergency (CNBC )
• Swiss glaciers lose 10% of their volume in two years (The Guardian )
• Scientists in Japan find plastic in clouds for the first time (Euronews )
• The World’s Largest—and Stinkiest—Flower Is in Danger of Extinction (WIRED )
• Europe’s olive oil supply running out after drought – and the odd hailstorm (The Guardian )

• Climate change and El Ni?o behind unpayable global food prices (Euronews )
• UK wildlife continues long-term decline in diversity and abundance (Financial Times )
• UN calls for radical changes to slow warming (BBC )
• Developing Countries Won’t Beat the Climate Crisis Without Tackling Rising Debt (World Research Institute )
• Libya faces long road to recovery as relief groups ask for $71 million in aid (CNBC )

Business Climate Reality

• Largest untapped UK oil field approved for development amid environmental backlash (CNBC )
• Biden to sell three oil and gas leases over five years, angering climate advocates (The Guardian )
• Farmers not 'out of woods' after meat tax rejected (BBC )
• Your New Apple Watch Won’t Be Carbon Neutral (WIRED )
• Business braced for red tape from EU carbon border tax (Financial Times )
• EU faces ‘make or break moment’ for green transition, report says (The Guardian )

• Deep divisions over oil and gas industry role challenge UN climate talks (Financial Times )
• Underground climate change: How heat is trapped under the surface, threatening buildings (CNBC )
• Lego axes plan to make bricks from recycled bottles (BBC )
• Working remotely could cut your emissions by half, new study suggests (Euronews )

Reality Check

As the economy undergoes a rapid transition towards net-zero, companies are increasingly undertaking a range of sustainability assessments to evaluate their environmental impact. One such crucial test is a materiality assessment - a cornerstone of ESG (Environmental, Social, and Governance) operations.?

Accordingly, this week's newsletter includes a deep dive materiality assessments and why they are becoming not only indispensable for organisations striving towards sustainability, but also for businesses striving towards financial success.

What is a materiality assessment?

A materiality assessment is a formal exercise aimed at engaging external stakeholders to find out how important Environmental, Social and Governance (ESG) issues are to them. The insights from material assessments can be used to guide strategies and communication and tell a more meaningful sustainable story to stakeholders. In other words, a materiality assessment is a method that allows companies to understand and prioritise their sustainability issues better, incorporating stakeholder views on their products or services.?

The primary objective of this assessment is to identify the social and environmental areas that hold the most significance for your company, investors, and stakeholders.?

Why is a materiality assessment important?

Materiality assessment is the bedrock for companies to formulate efficient sustainability strategies. With the world increasingly striving for net-zero emissions , the relevance of this assessment has skyrocketed. It illuminates various ESG challenges that could potentially derail a company's journey towards environmental and economic prosperity.

Research reveals that companies that address material ESG factors pertinent to their industry may have a performance advantage over the long term . Simultaneously, there's a potential opportunity cost for businesses emphasising immaterial factors. Although it's not a direct causation, there's a clear correlation between material ESG issues and financial performance, underlining the importance of materiality assessments.

Regulatory developments such as the SEC disclosure rule in the U.S. and the Non-Financial Reporting Directive (NFRD) in Europe. Companies adopting materiality assessments now will be better equipped to meet future environmental regulations .

How to conduct a materiality assessment?

Materiality assessment is an essential practice for organisations seeking to identify and manage the environmental, social, and governance (ESG) topics that matter most to their business and stakeholders.?

Here is a brief overview of how to carry out this process. For a comprehensive step-by-step breakdown of conducting a materiality assessment, read here.

1: Define objectives, scope, and audience

• Set clear objectives
• Identify your audience
• Define 'materiality'
• Outline the organisational scope

2: Identify potential topics

• Compile a list of material topics
• Involve key individuals
• Consider external stakeholder engagement

3: Categorise

• Cluster topics into categories
• Use company-specific language
• Ensure understanding

4: Gather information

• Gather relevant information
• Assess impact

5: Prioritise

• Prioritise material topics
• Integrate with risk management

6: Seek approval

• Get approval from senior management
• Present outcomes to the board

7: Review and integrate

• Review with stakeholders
• Document and integrate results

At the end of the process, a materiality matrix is often created to provide a visual representation of the key learnings, helping stakeholders decide the next steps based on the findings.

Why should businesses use materiality assessments?

A materiality assessment provides a wealth of benefits. It enables companies to define a long-term emissions reduction plan, evaluate risks, and take advantage of available opportunities. The process also enhances stakeholder engagement and allows a company to improve its transparency, thereby boosting its reputation. Moreover, a materiality assessment can enhance sustainability reporting, facilitate progress tracking, and ensure better resource allocation. A 2021 MIT study found that sustainability reporting can lead to a 4.6% increase in market value, underlining the economic advantages of conducting materiality assessments.

Meanwhile, when properly conducted, a Materiality Assessment can validate a business strategy's efforts to incorporate social and environmental needs. It also provides insights on strategies for long-term sustainability success and reveals the topics most relevant to stakeholders. Moreover, it can help identify neglected sustainability issues and assess a company's standing in an increasingly sustainable society.

As per a study by McKinsey, companies that lead in ESG had a valuation premium of up to 20% and showed superior profitability , reinforcing the argument for a Materiality Assessment's worth for any company. As sustainability becomes a mandatory aspect of successful businesses, a Materiality Assessment emerges as a worthy investment.

Sustainability experts, Plan A , understand the intricacies of Materiality Assessments and the unique challenges and opportunities they present. We're here to guide and assist your business in its transition to sustainable practices. Get in touch with us to learn more about how we can support your sustainability journey.

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