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Materiality Assessments: Foundational to Comprehensive ESG and Corporate Strategies


More than ever, companies are being evaluated based on their actions and impacts on various issues and metrics beyond traditional financial performance. Environmental, Social, and Governance (ESG) issues are reshaping and expanding the scope of conventional business considerations.

ESG can be viewed through several lenses—risk management/mitigation, value creation opportunities, and stakeholder management. Regardless of the lens, the first step in establishing an ESG strategy is understanding the business’s material issues. Once material ESG issues have been identified and evaluated within the business context, companies are better informed in developing corporate strategies and business plans, establishing policies and processes, and allocating resources to ensure that decisions made are in the best interest of the organization’s long-term health.

A materiality assessment is a commonly adopted practice to help a company determine the ESG issues most important to internal and external stakeholders. A 2019 survey of 50 sustainability executives showed that 92 percent of the respondents conducted a materiality assessment at the onset of their sustainability program or when reviewing sustainability strategy.

Although a materiality assessment requires time and resources, it is essential for gathering insights to inform an ESG or business strategy. This paper highlights the value of conducting a materiality assessment, key considerations, and leading practices that are foundational to developing a comprehensive ESG strategy.


What is a Materiality Assessment, and Why is it Important?

A materiality assessment is a structured exercise to evaluate the importance of specific ESG issues to internal and external stakeholders. ScottMadden recommends that companies perform a materiality assessment before establishing a formal ESG strategy. The results should be refreshed every few years or in response to significant changes in the business or its operating environment (e.g., many companies refreshed their results in response to the business impacts of the COVID-19 pandemic).

Organizations face increasing and often competing demands from stakeholders, and no organization can focus on everything. The materiality assessment process creates alignment on those areas of sustainability most in need of attention or those most material to a company’s overall success.


Key Considerations and Leading Practices


As the expectations and requirements for businesses to incorporate ESG considerations into their strategy and operations continue to evolve and primarily increase, it is essential to understand and prioritize material issues. Materiality assessments are essential strategic planning practices that establish data-driven foundations, encourage stakeholder engagement, and allow organizations to align ESG strategy to long-term business planning.


About ScottMadden

ScottMadden is the management consulting firm that does what it takes to get it done right. We consult with a wide range of clients across numerous industries with deep expertise in Energy and Corporate & Shared Services. We deliver a broad array of consulting services, from strategic planning to implementation.

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