Companies across a wide range of sectors are keener than ever to reduce their footprint with it comes to carbon emissions. A key inspiration behind this change has been the rise of ESG.
Many companies are also keen to show the action they’re taking and the results they are achieving on ESG – making the evidence of an ESG strategy even more essential.
In a recent post, RegTech firm Diligent delved into the topic of ESG materiality assessments, which the firm claims can be a ‘sensible first step’ in this process, enabling organisations to focus their ESG programs.
What is an ESG materiality assessment? According to Diligent, in simple terms, it means identifying the most pressing ESG priorities for a company.
The firm said, “By helping you understand the relative importance of various ESG issues for your organization, an ESG materiality assessment can enable you to focus action where it is most needed and can have the most impact.”
Diligent also outlined the topic of double materiality ESG, which refers to ESG materiality assessments and rankings that take into account the financial and wider impacts of a business’s social and environmental performance.
According to the company, in practical terms, this means not just assessing the financial risks or costs of, for example, a poor record on greenhouse gas emissions but also the softer impacts such as reputational and societal ones. “It means looking at ESG issues through a purely financial lens and through the eyes of a stakeholder,” Diligent claims.
“This subjectivity in ESG disclosures and claims is one strong argument for “double materiality ESG”; prioritization and assessment that marries stakeholder sentiment with tangible, financial impacts.”
What are the benefits of an ESG materiality assessment for a company? Diligent claims they help pinpoint the areas of ESG that have the largest impact on your company’s financial performance and public perception, improve stakeholder engagement and relationships, ensuring corporate strategy is in line with stakeholder demand, identify the financial and other risks of taking action and stay abreast of ESG trends.
In addition, the assessment helps companies get a ‘step ahead’ of nascent ESG risks as well as helping to weight up the relative benefits of acting on some issues over others, creating a baseline for ESG performance measurement, making a business case for investment in priority ESG activities and aligning your ESG reporting and stakeholder communications with key issues.
To conduct an ESG materiality assessment, what do companies need to do? Diligent provides nine key steps – the first being the need to define the scope and aims of your materiality assessment. Following this, companies need to identify the internal stakeholders they will approach, identify potential issues for inclusion, group, prioritise and cut down the issues to create a final shortlist, design the survey you will use to secure stakeholder feedback, consider testing your material survey before sharing, launch the assessment survey, analyse the findings and prioritise actions based on the outcomes.
Diligent concluded, “An ESG materiality assessment can focus your efforts, build a business case for investment in ESG projects, increase stakeholder buy-in and ultimately deliver more effective ESG programs for your organization.
“In an area where external imperatives, regulations, legislation and public priorities are constantly evolving, a materiality assessment can bring clarity and purpose to your ESG efforts, minimizing uncertainty and subjectivity. As a corporate leader, you doubtlessly feel under pressure to spearhead your organizational stance and results on ESG. But mitigating the risks and capitalizing on the opportunities of ESG demands that you understand the issues to take decisive action.”
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