What is an Impact Materiality Assessment?
An Impact Materiality Assessment helps you understand how your business affects the environment and society. It is also known as an ‘inside-out’ approach to materiality.
This process involves engaging with your stakeholders to understand their views. You’ll ask them to rate the importance of the company’s environmental, social and governance (ESG) issues.
This assessment directs your efforts toward the most pressing material issues, based on how likely they are to cause harm. These are the areas of sustainability where your actions can have the most meaningful and positive impact.
Examples of impact material issues include:
Pollution: The impact of a company's operations on the environment.
Poverty: The impact of a company's operations on the communities in which it operates.
Inequality: The impact of a company's operations on income inequality and social mobility.
Why should I do an Impact Materiality Assessment?
Relevant information gathered from an Impact Materiality Assessment helps companies establish a strong base for long-term sustainability. This data allows companies to adjust and improve their sustainability strategies to match the evolving expectations of society. Ultimately, it will help them combat the biggest issues facing people and the planet.
But it’s not just beneficial to the environment and society. There are several ways that an Impact Materiality Assessment can add value to your company.
Benefits to the company
Engage stakeholders in the Impact Materiality Assessment process to foster transparency, build trust, and consider diverse perspectives, benefiting the organisation.
Identify and manage potential risks associated with operations, allowing for proactive risk management & mitigation strategies.
Make informed decisions that support long-term success and positive societal impact, by aligning business strategies with sustainability goals.
Allocate resources effectively to direct your efforts and investments where they’ll have the most meaningful impact.
Meet regulatory compliance requirements related to sustainability reporting, including GRI and the UN SDGs.
Enhance your reputation and get a competitive advantage. Consumers, investors, and partners are increasingly valuing businesses that demonstrate a commitment to sustainability and responsible practices. Impact Materiality Assessments can lead to increased brand loyalty, customer trust, and attractiveness to socially responsible investors.
Boost innovation and efficiency. The Impact Materiality process can help you uncover opportunities to enhance efficiency and reduce waste. It can also stimulate the development of new products or services that align with sustainability goals.
Engage with employees, who take pride in working for a company that is purpose driven. Impact Materiality Assessments can contribute to a positive workplace culture and the attraction & retention of top talent.
Realise partnership opportunities and collaborate with organisations that share similar values and sustainability goals.
Build a foundation for long-term sustainability. Insights gained from an Impact Materiality Assessment are key to an effective sustainability strategy.
Alignment with ESG reporting standards
Some ESG standards - including the Global Reporting Initiative (GRI) and the United Nations Sustainable Development Goals (UN SDGs) - recommend an Impact Materiality Assessment.
Global Reporting Initiative (GRI)
The Global Reporting Initiative was founded in 1997 following the Exxon Valdez climate disaster. Their mission is to create a sustainable future by helping organisations be transparent and take responsibility for their impacts. They do this by creating a common global language for reporting.
In their own words, the GRI standards ‘are the only global standards with an exclusive focus on impact reporting'.
The assumption is that these impacts will become financially material over time, if they aren’t already. It is not possible to get a complete understanding of the financial issues affecting a company without impact reporting.
“Impact reporting is…highly relevant in its own right as a public interest activity for multiple stakeholders. The impacts of a company matter and must be reported even if the company or its investors do not consider them to be financially material, either now or in the future.” (The GRI Perspective - The materiality madness: why definitions matter)
United Nations Sustainable Development Goals (UN SDGs)
The United Nations developed the Sustainable Development Goals (SDGs) in 2015, which included 17 objectives and 169 targets. The goals address a wide range of sustainability issues spanning social, economic, and environmental areas. These include global challenges like poverty, inequality, climate change, health, education, and peace.
By aligning material issues with the SDGs, companies can showcase their commitment to these global challenges. An Impact Materiality Assessment can help you map specific SDGs to material issues. This helps you track your contribution to the goals and drive positive change.