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Materiality Assessment Prior to Reporting: a How-to Primer

westaway, richard, IMSMateriality has become something of a buzz word in the sustainability arena in 2013, helped by the increased emphasis placed on “material” issues in the new G4 sustainability reporting guidelines from the Global Reporting Initiative (GRI). There can be no doubt that materiality is a valuable concept for companies to consider when developing a sustainability strategy or report (regardless of whether or not it is being done to be “in accordance” with the GRI G4 guidelines), as it ensures that there is a focus on the most important issues. However, it requires a materiality assessment to be undertaken prior to reporting; a process that will be new for many, is currently poorly understood and documented, and which involves several practical challenges that are yet to be widely debated.

What issues?

The starting point for any materiality assessment needs to be a long list of all the sustainability issues and impacts that are relevant and hence potentially material. The GRI provide a set of 46 sustainability aspects, however these headings alone are ambiguous, open to misinterpretation and in some cases do not clearly reflect the subsequent disclosures required. Instead, we have found that more customized, sector-specific sets of potential sustainability issues will need to be established that are relevant and meaningful to a given company and its stakeholders. This is the approach adopted by our client Morgan Sindall Group, in an ongoing materiality assessment, which took as its starting point a set of issues specifically established as pertinent to UK construction companies. However, care must be taken when creating such a list to ensure that a company is not prejudging which issues are relevant and omitting others that are assumed not to be.

What boundaries?

Another challenge is to define the boundaries of material issues and impacts. Typically, non-financial reporting has tended to have been limited to the financial or operational boundary; that is to topics that are within the direct control of the reporting company. However, the GRI G4 guidelines recommend consideration of all issues and impacts, regardless of whether they occur within or outside of an organization. The need to consider indirect impacts casts the materiality net much wider than before. For example, it might require a company to consider – and report on if deemed material – the human rights performance of its suppliers or the energy use of its consumers; issues which perhaps were previously outside the operational boundary and hence omitted from reporting.

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