What is your company doing to stand out in the ESG domain?
The market in general, and investors in particular, are increasingly aware of what companies are doing in relation to the environment, how they treat their employees and suppliers, and how much effort they put on responsible governance practices.
With the growing awareness of the population regarding these issues, it is natural that they start to raise their voices to demand changes. As a result, companies are asked to show greater 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 written this post to help you with the starting point of ESG management in your company: the materiality matrix.
Do you know what the materiality matrix is?
Companies are faced daily with a multitude of social and environmental issues, such as health and safety, ethics and transparency, inclusion, diversity, waste disposal and atmospheric emissions, climate change, among others.
Trying to embrace and handle all issues within the ESG scope is a virtually impossible task. In this context, the materiality matrix comes to answer the question: which socio-environmental issues are actually relevant to the business?
This tool enables a company to report its current scenario and describe which topics it will focus on to achieve its strategic objectives in the market.
It provides the foundation for sustainability reports, the company’s strategy and is the first step in preparing a risk matrix for socio-environmental impacts – a requirement of some guidelines from financial institutions worldwide.
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 as well as on the stakeholders’ perception of the impacts.
And why is the materiality matrix so important?
Here are some of the many benefits of developing a materiality matrix:
- It allows evaluating and analyzing each subject in question to minimize costs and increase the organization’s market share;
- The identification of socio-environmental issues relevant to the business can help your company to attract investments and ensure a good reputation;
- The materiality matrix helps in risk management and generates business opportunities by identifying relevant topics such as services and models that can improve factors related to profit margin, price, etc.;
- It provides the framework for a focused annual report and allows organizations to concentrate their efforts on better resource allocation;
- It increases the chances of better meeting stakeholder expectations.
Furthermore, when done correctly, the materiality matrix adds strategic weight to a sustainability agenda, connecting ESG issues to the organization’s core value proposition.
But after all, what are the first steps for the company to build its materiality matrix?
Step 1 – Define who the stakeholders are
A successful materiality matrix should always consider the opinions and insights of internal and external stakeholders, such as:
- employees;
- suppliers;
- customers;
- investors;
- shareholders;
- board members;
- community where it operates;
- among others.
They can provide a wide range of perspectives across the value chain on your company’s sustainability strategy.
Step 2 – Identification of topics
After establishing the stakeholders, based on company policies and practices, seek insights from media research and internal documentation to determine which topics are most relevant to your business.
Topics vary from organization to organization, but are generally divided into:
Governance
- Ethics and transparency
- Risk management
- Customer privacy
- Gender equity on the board of directors
- Service quality and customer satisfaction
Environmental
- Waste management
- Consumption of water and electricity
- Emissions control and pollution management
- Biodiversity protection
Economic
- Maximizing return on investment
- Operational costs
- Profit
Social
- Worker health and safety
- Human rights and diversity
- Impact on community
- Social work and involvement
Step 3 – Internal assessment
Usually, the identification phase results in a huge list of relevant topics, much more than a company is capable of managing.
In this phase, members of top management must internally evaluate a way to prioritize the most important topics for the organization.
Step 4 – Stakeholder assessment
Prepare a questionnaire or a formal survey for stakeholders to identify the most relevant topics for the business.
The questionnaire can be created in such a way that stakeholders assess the importance and impact of each topic on a rating scale, in a ranking format or just by selecting the most important items. Quantitative data makes the analysis easier and can be explained visually.
Step 5 – Analyze the responses and build the materiality matrix
In this step, we compare the internal assessment of top management with the assessment of stakeholders to obtain a consensus on the relevant topics.
Analyze the results of each topic individually to determine which ones are most important to each group of stakeholders. After that, gather all the data to find common ground.
You can start by creating charts based on trends and observations. From this analysis, you will be able to start building your materiality matrix.
The final result should show the importance of each topic for the company in relation to the influence of stakeholders.
Now that you know the first steps to build your materiality matrix, learn more about SoftExpert Survey!
Create questionnaires in minutes via an intuitive interface and share with stakeholders internally or externally via a link.
SoftExpert Questionnaire’s analysis tool also enables deeper analysis of results and better decisions by grouping, filtering, and cross-referencing information.
