How to build a materiality matrix in 5 steps

The materiality matrix is the starting point of ESG (Environmental, Social, and Corporate Governance) management in your company. It makes it possible to identify and prioritize the aspects that impact your operation. The matrix organizes the current scenario of a company so that you can easily describe which themes you will focus on to achieve strategic objectives.

It is essential for corporations that seek to reinforce their commitment to the environment and responsible governance practices.

With the growing awareness of these issues among the population, it is natural for customers to look for companies that offer transparency and adopt socially fair practices.

This is one of the reasons why adapting to stakeholder expectations is crucial for the long-term survival of companies.

With that in mind, we have prepared a step-by-step guide to help you with the creation of an ESG materiality matrix. But before showing you how to create a matrix in five steps, let’s explain more about what it is, how it works, and its benefits.

Learn more: Free Ebook – Ask your main questions about the Materiality Matrix

What is the materiality matrix?

Companies are faced day after day with a multitude of social and environmental issues. Some of the main ones are:

• Health and safety;

• Ethics and transparency;

• Social inclusion;

• Diversity;

• Disposal of waste and atmospheric emissions;

• Climate change.

In other words: it’s a lot, and trying to embrace and take care of all topics in the ESG field is a practically impossible task. Therefore, the materiality matrix helps to answer the question: which social and environmental issues are really relevant to the business? 

In this way, the matrix allows you to map the current scenario of your company and describe which themes it will focus on. Remember to choose those that help you achieve your strategic goals within your market.

It provides the basis for sustainability reporting and the company’s strategy. Therefore, it is the first step in preparing the risk matrix of socio-environmental impacts — a requirement of some guidelines stipulated by financial agencies in Brazil, for example.

In other words, we can say that the materiality matrix is the process of knowing the most important topics for the company, based on the business strategy and the perception of stakeholders about the impacts they have on the business.

What does a materiality matrix look like in practice?

Conceptually, the materiality matrix is a ranking of the most pertinent topics for a corporation from an ESG point of view. In practice, it is a visual way of identifying issues in order of greatest or lesser importance.

For this, the matrix is usually composed of two axes. They are:

• Horizontal Axis (Importance to stakeholders): shows the degree of importance that different stakeholders (customers, investors, employees, communities affected by the company’s activities, etc.) attribute to certain themes or issues.

• Vertical Axis (Impact on the organization): evaluates the impact that these topics have on the organization itself in relation to its financial, operational, reputational performance, among other aspects.

Taking into account this organization, each item is positioned within the matrix as follows:

• In the upper right part: there are items of high importance to both stakeholders and the organization. Therefore, they receive more attention and resources.

• Bottom left: the least critical issues are positioned according to these criteria.

This approach helps to ensure that the company focuses on truly relevant issues and that can impact its success. The result of the materiality matrix will look like the example below:

What are the benefits of the materiality matrix?

You may have already realized that having a materiality matrix helps a lot to organize priorities and direct tasks and strategies. In addition, the use of this tool also brings other benefits to your company.

Among the main ones are:

• Evaluate and analyze each subject in question to minimize costs and increase the organization’s market share;

• Identify socio-environmental issues relevant to the business that help your company attract investments and ensure a good reputation;

• Risk management, which generates business opportunities through the identification of relevant topics, such as services and models that improve profit margin, price, etc.;

• Provide an annual report that is focused and allows efforts to be concentrated on the best allocation of resources;

• Increased chances of better meeting stakeholder expectations;

• Add strategic weight to a sustainability agenda by connecting ESG issues to the organization’s core value proposition.

5 steps to build your materiality matrix

Once you understand what the materiality matrix is and what its benefits are, it’s time to get your hands dirty. Below you can see five tips to speed up and facilitate its construction.

But first, it is worth remembering: details vary according to the segment and structure of each company. For example, a structured company can use a digital tool to create the matrix, while another in the early stages can even use pen and paper.

The important thing is to know how to adapt tactics and practices to your reality and understand the objective behind each action.

1. Define who the stakeholders are

A successful materiality matrix should always consider the opinions and insights of internal and external stakeholders. Some examples of them are:

• Collaborators;

• Suppliers;

• Clients;

• Investors;

• Shareholders;

• Counsellors;

• Community in which it is inserted.

Everyone can provide a wide range of perspectives across the value chain on your company’s sustainability strategy. Therefore, value the experience and knowledge of these people.

2. Identification of themes

Once you’ve defined your stakeholders, consider the company’s policies and practices to seek insights from media surveys and internal documentation. This aims to determine which topics are most relevant to your business. 

They vary from organization to organization, but are generally divided into four groups.

Governance:

• Ethics and transparency;

• Risk management;

• Customer privacy;

• Gender equity on the board of directors;

• Quality of service and customer satisfaction.

Environmental:

• Waste management;

• Water and electricity consumption;

• Emissions control and pollution management;

• Protection of biodiversity;

Economical:

• Maximization of return on investment;

• Operational costs;

• Profit.

Social:

• Occupational health and safety;

• Human rights and diversity;

• Impact on the community;

• Social assistance and involvement.

3. Internal evaluation

Usually the identification phase results in a huge list of relevant topics, much more than a company is capable of managing. At this stage, senior management members must list criteria to prioritize the most important topics for the organization.

4. Stakeholder assessment

Develop a questionnaire or a formal survey for stakeholders to identify the topics of greatest relevance to the business.

It should be built so that people evaluate the importance and impact of each topic on a numerical scale, in the ranking format, or simply with the selection of the most important ones.

In this way, you aggregate quantitative data that facilitates analysis and can be explained visually in an intuitive way.

Check out an example of a theme classification questionnaire below:

5. Analyze the answers and build the materiality matrix

In this step, you should compare the internal evaluation of senior management with the evaluation of stakeholders to obtain a consensus on the relevant topics.

To do this, analyze the results of each theme individually and determine which ones are most important to each stakeholder group. After that, gather all the data to find common ground.

A tip to facilitate analysis is to create trend graphs, as well as write down observations. From this analysis, you will be able to assemble your materiality matrix.

Remember: the result of the materiality matrix should show the importance of each topic for the company concerning the influence of stakeholders.

Conclusion

Now that you know the first steps to build your materiality matrix, learn about an easier way to collect the information that is essential for the success of this tool: the SoftExpert Questionnaire.

With this feature of the SoftExpert Suite system, you can create questionnaires in minutes through an intuitive interface and share them with stakeholders — whether internal or external — through a link.

The tool also enables in-depth analysis of the results and provides better decisions through grouping, filtering and cross-referencing of information.

So, if you want more efficiency in your operation, our experts can help you identify the best strategies for your company with SoftExpert’s solutions. Talk to us today!