A materiality assessment is a structured process enabling companies to pinpoint and rank the most critical ESG concerns. It includes assessing the effects of a company's operations on various facets, integrating both internal and external viewpoints.
The objective is to identify which concerns are material – or substantial – to a company's overarching sustainability strategy and reporting measures. Materiality assessments direct companies in concentrating their strategies on aspects genuinely significant to stakeholders, investors, and the company itself.
Double Materiality
A double materiality assessment (DMA) is a structured process enabling companies to pinpoint and rank the most critical ESG concerns. It includes assessing the impact of the enterprise on the world (inside out perspective) and the world's impact on the enterprise (outside in perspective).
The objective is to identify which concerns are material – or substantial – to a company's overarching sustainability strategy and reporting measures.
Impacts, Risks, and Opportunities (IROs) justify why a topic is material. Their material impact is estimated and those above a pre-set threshold are classified against ESRS reporting standard and are used to set up metrics for ESG reporting. The DMA process should create a clear, logical, and defensible trail from the main sustainability topics all the way down to the numbers in the ESG reports. Hence, it must be transparent and audit-proof process.
Note
Organizations perform the DMA in many ways: either manual excel-based solutions or tool-based solutions from many partners in the market. To enable a flexible connection to different partner solutions, SAP is working on an open inbound API to consume the results of the DMA in SAP Sustainability Control Tower.
Within the SAP Sustainability Control Tower framework, materiality assessments play a pivotal part in the following ways:
- They help companies in selecting relevant sustainability metrics and measures.
- They influence the choice of dimensions (like organizational hierarchy, timeline, and data source) used in reporting.
- They provide companies with clarity on what matters most, enabling them to align their sustainability initiatives with stakeholder expectations and strategic objectives.
Key Phases of Materiality Assessment
The following video shows the key phases of Materiality Assessment.