How to build a materiality matrix in 5 Steps

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

It is essential for corporations seeking 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 seek companies that offer transparency and adopt socially just practices.

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

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

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What is the materiality matrix?

Companies face a multitude of social and environmental issues daily. Some of the main ones are:

Health and safety;
Ethics and transparency;
Social inclusion;
Diversity;
Waste disposal and atmospheric emissions;
Climate change.

In other words, there are many issues, and trying to embrace and address all ESG themes is practically impossible. Therefore, the materiality matrix helps answer the question: which socio-environmental themes are truly relevant to the business?

Thus, 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 achieve your strategic objectives within your market.

It underpins sustainability reports and the company’s strategy. Therefore, it is the first step in developing the socio-environmental impact risk matrix — a requirement of some guidelines stipulated by financial bodies in Brazil, for example.

In other words, we can say that the materiality matrix is the process of understanding the most important themes for the company, based on the business strategy and stakeholders’ perception of their impacts on the business.

What does a materiality matrix look like in practice?

Conceptually, the materiality matrix is a ranking of the most relevant themes for a corporation from an ESG perspective. In practice, it is a visual way to identify the subjects in order of importance.

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

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): assesses the impact these themes have on the organization itself regarding its financial, operational, reputational performance, among other aspects.

Considering this organization, each item is positioned within the matrix as follows:

Upper right corner: items of high importance to both stakeholders and the organization. Therefore, they receive more attention and resources.
Lower left corner: issues less critical according to these criteria.

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

Materiality Matrix example

What are the benefits of the materiality matrix?

You may have already realized that having a materiality matrix helps a lot in organizing priorities and directing tasks and strategies. Additionally, using this tool brings other benefits to your company.

Among the main ones are:

Evaluate and analyze each issue to minimize costs and increase the organization’s market participation;
Identify relevant socio-environmental themes for the business that help your company attract investments and ensure a good reputation;
Risk management, which generates business opportunities through the identification of relevant themes, such as services and models that improve profit margins, pricing, etc.;
Provide a focused annual report that allows efforts to be concentrated on the best allocation of resources;
Increase the chances of better meeting stakeholder expectations;
Add strategic weight to a sustainability agenda, connecting ESG issues to the organization’s core value proposition.

5 steps to build your materiality matrix

After understanding what the materiality matrix is and its benefits, it’s time to get to work. Below are five tips to speed up and facilitate its construction.

But first, it’s 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 initial stages can use even paper and pen.

The important thing is to adapt the 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 are:

Employees;
Suppliers;
Customers;
Investors;
Shareholders;
Advisors;
The community in which it operates.

All of them 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

After defining the stakeholders, consider the company’s policies and practices to seek insights from media research and internal documentation. This aims to determine which themes 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;
Service quality and customer satisfaction.

Environmental:

Waste management;
Water and electricity consumption;
Emission control and pollution management;
Biodiversity protection.

Economic:

Maximizing return on investment;
Operating costs;
Profit.

Social:

Worker health and safety;
Human rights and diversity;
Community impact;
Social assistance and engagement.

3. Internal evaluation

The identification phase usually results in a huge list of relevant themes, much more than a company can manage. At this stage, senior management members should list criteria to prioritize the most important themes for the organization.

4. Stakeholder evaluation

Prepare a questionnaire or formal survey for stakeholders to identify the most relevant themes for the business.

It should be designed for people to evaluate the importance and impact of each theme on a numerical scale, in a ranking format, or simply by selecting the most important ones.

This way, you gather quantitative data that facilitates analysis and can be visually explained intuitively.

Below is an example of a stakeholder theme ranking questionnaire:

Materiality Matrix Questionaire

5. Analyze the responses and build the materiality matrix

In this step, you should compare senior management’s internal evaluation with the stakeholders’ evaluation to reach a consensus on relevant themes.

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

A tip to facilitate the analysis is to create trend charts and note observations. From this analysis, you can build your materiality matrix.

Remember: the result of the materiality matrix should show the importance of each theme to the company in relation to stakeholder influence.

How to engage stakeholders

Stakeholders offer valuable perspectives along the value chain on the company’s sustainability strategy. Listening to their opinions is crucial to defining and prioritizing the themes of the materiality matrix.

To build the matrix, we combine stakeholder opinions with the company’s point of view. The analysis focuses on what both parties consider essential for business continuity.

Who are the stakeholders?

Every business has a group of people directly impacted by the organization’s actions: the stakeholders. These people can be:

Employees;
Suppliers;
Customers;
Investors;
Shareholders;
Advisors;
The surrounding community;
Among others.

It is essential to consider internal stakeholders, who work directly in the company, and external ones — those who do not participate in operations but influence or are impacted by the results.

When selecting who will participate in the materiality analysis, evaluate the position, influence, and especially the impact of each stakeholder’s opinion.

How many stakeholders should be interviewed?

How Many Stakeholders Should Be Interviewed?

There is no fixed rule on the number of stakeholders involved. The focus should be on leaders with influence or decision-making power within the organization.

For example, in an industry, factory floor employees may not have the strategic vision necessary to identify what is truly material to the business.

In a supermarket with 350,000 products, how many external stakeholders should be interviewed? The answer will depend on the relevance and impact of each segment involved.

In this case, it is important to evaluate:

Which products are the best sellers?
Which generates the highest profit margins for the supermarket?
Which products are recognized for their quality?
Which products are directly associated with the establishment’s image?

From this information, it is possible to map and classify the stakeholders, defining their level of importance and influence on the offered product.

How to keep stakeholders engaged

Finally, here are some tips to engage stakeholders and encourage their participation in building the materiality matrix:

Be transparent: explain the ongoing work and show how the stakeholder’s opinion impacts the result.
Communicate the value: reinforce the importance of the stakeholder’s contribution to the business’s success.
Go beyond the questionnaire: whenever possible, schedule interviews to deepen the discussion.
Be direct: ask what they consider essential to maintain the quality of the company’s products or services.
Listen attentively: understand the stakeholder’s view of your company and their priorities.

Lastly, evaluate how relevant your company is to the stakeholders. They will dedicate time to share what they consider important for the business, so engagement should be proportional to the perceived impact.

Conclusion

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

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 — via a link.

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

Looking for more efficiency and compliance in your operations? Our experts can help identify the best strategies for your company with SoftExpert solutions. Contact us today!