How to Conduct a Materiality Assessment

What a Materiality Assessment Does

A materiality assessment determines which sustainability topics deserve attention in your strategy and reporting. It separates the signal from the noise — identifying the ESG issues that matter most to your business and your stakeholders.

There are three flavors:

• Impact materiality (GRI): Topics where your organization causes or contributes to significant impacts on the economy, environment, and people.
• Financial materiality (ISSB): Sustainability-related risks and opportunities that could reasonably affect enterprise value and investor decisions.
• Double materiality (CSRD/ESRS): Both perspectives simultaneously. A topic is material if it meets either the impact or financial threshold.

If you're subject to the CSRD, you need double materiality. If you're reporting under ISSB, focus on financial materiality. If you're using GRI, impact materiality drives the analysis. Most organizations benefit from doing the full double materiality exercise regardless of regulatory requirements.

Step 1: Assemble the Project Team

You need cross-functional representation:

• Sustainability/ESG team — leads the process
• Finance/Risk — assesses financial implications
• Operations — understands supply chain and environmental impacts
• Legal/Compliance — flags regulatory requirements
• Investor Relations — represents capital market expectations
• HR — covers social and workforce topics

Appoint a project lead with decision-making authority and direct access to senior leadership.

Step 2: Build a Long List of Potential Topics

Start with a universe of ESG topics drawn from:

• ESRS topical standards (E1-E5, S1-S4, G1) — use these as your master list if CSRD applies
• GRI Sector Standards — sector-specific material topics
• SASB/ISSB industry guidance — financially material topics by sector
• Peer reports — what are competitors disclosing?
• ESG rating agency questionnaires — MSCI, Sustainalytics, CDP topics
• Regulatory horizon scanning — upcoming regulations that signal emerging material topics

A typical long list contains 20-40 topics. Group them into clusters (climate, biodiversity, workforce, governance, etc.) to make the assessment manageable.

Step 3: Engage Stakeholders

Gather input from internal and external stakeholders to inform your materiality judgments:

Internal stakeholders:

• Executive interviews (30-minute structured conversations with C-suite and board members)
• Employee surveys (especially for workforce-related topics)
• Workshop sessions with functional leads

External stakeholders:

• Investor calls or surveys (focus on financial materiality)
• Customer interviews or surveys
• Supplier questionnaires
• Community representatives (especially for site-specific impacts)
• NGO and civil society input (for impact materiality)

Use a consistent scoring framework. For each topic, ask stakeholders to rate:

• Severity of impact (scale, scope, irremediability for negative impacts; scale and scope for positive)
• Likelihood of impact
• Financial magnitude (potential effect on revenues, costs, assets, liabilities, cost of capital)
• Time horizon (short, medium, long term)

Step 4: Assess Impact Materiality

For each topic on your long list, evaluate:

1. Actual impacts: What impacts is your organization currently causing, contributing to, or directly linked to through business relationships?
2. Potential impacts: What impacts could occur based on your activities, products, and value chain?
3. Severity: Rate each impact on scale (how widespread), scope (how deep/intense), and irremediability (how hard to reverse). For human rights impacts, severity takes precedence over likelihood.
4. Likelihood: For potential impacts only, assess probability of occurrence.

Use a rating scale (e.g., 1-5) applied consistently across all topics. Document your scoring criteria so the assessment is repeatable.

Step 5: Assess Financial Materiality

For each topic, evaluate:

1. Risks: Could this topic create financial risks through regulatory action, market shifts, operational disruption, reputational damage, or litigation?
2. Opportunities: Could this topic create financial value through new products, cost savings, market access, or improved terms of financing?
3. Magnitude: Estimate the potential financial effect (qualitatively: low/medium/high, or quantitatively if data permits)
4. Likelihood: Assess probability over short (0-1 year), medium (1-5 years), and long-term (5+ years) horizons

Cross-reference with your enterprise risk management framework. Many financial materiality topics already appear in corporate risk registers — connect them.

Step 6: Apply Materiality Thresholds

Set explicit thresholds for what qualifies as "material":

• Impact materiality threshold: Topics scoring above a defined severity threshold (e.g., ≥3 out of 5) on at least one impact dimension
• Financial materiality threshold: Topics with medium or high financial magnitude and at least moderate likelihood within a 5-year horizon
• Double materiality: A topic is material if it crosses either threshold

Be prepared to defend your thresholds to auditors. ESRS requires disclosure of the process, criteria, and thresholds used.

Step 7: Validate with Leadership

Present your draft materiality matrix (or prioritized list) to the executive team and board for validation. This step serves two purposes:

1. Quality check: Leaders may have context about emerging risks or strategic shifts that should adjust the assessment
2. Ownership: Leadership endorsement ensures the materiality results actually influence strategy, capital allocation, and reporting

Document any changes made during validation and the rationale.

Step 8: Map Material Topics to Disclosure Requirements

For each material topic, identify:

• Which ESRS disclosure requirements apply (if CSRD-subject)
• Which GRI Standards disclosures apply
• Which ISSB datapoints apply
• Which CDP questions are relevant

This mapping becomes the backbone of your sustainability report structure and data collection plan.

Step 9: Document and Disclose the Process

GRI 3 (Material Topics 2021) and ESRS 2 (IRO-1, IRO-2) require you to disclose:

• How you identified material topics
• Which stakeholders you engaged and how
• What criteria and thresholds you applied
• The final list of material topics and why they're material
• How material topics connect to your strategy

Transparency about your process is as important as the results. Auditors will test whether your process was robust and whether the outcomes are defensible.

Step 10: Refresh Regularly

Materiality is not static. Plan to refresh your assessment:

• Full reassessment: Every 2-3 years, or when your business model changes significantly
• Annual review: Check whether new regulations, market shifts, or stakeholder expectations have introduced new material topics or changed the priority of existing ones

Frequently Asked Questions

How long does a materiality assessment take?

A well-run double materiality assessment typically takes 10-16 weeks. The stakeholder engagement phase is the longest — allow 4-6 weeks for surveys, interviews, and workshops. If you're doing impact materiality only (GRI approach), 8-12 weeks is realistic.

Do we need an external consultant to run the assessment?

Not strictly, but external facilitation helps with stakeholder credibility, methodological rigor, and objectivity. If internal politics might bias the outcome, an external facilitator is worth the investment. At minimum, have someone outside the sustainability team review the methodology and thresholds.

What's the difference between a materiality matrix and a materiality list?

A matrix plots topics on two axes (typically impact severity vs. financial magnitude, or stakeholder importance vs. business importance). A prioritized list simply ranks material topics by score. The CSRD doesn't require a matrix — a documented list with scoring rationale is sufficient. Many companies are moving away from matrices because they can imply false precision.

How many topics should be material?

There's no magic number. Most companies identify 8-15 material topics. Fewer than 5 suggests your assessment was too narrow. More than 20 suggests you didn't apply meaningful thresholds. The goal is focus — a materiality assessment that includes everything is as useless as one that includes nothing.

Can we use last year's materiality assessment for this year's report?

Yes, if you conducted a thorough assessment within the past 2-3 years and no major business changes have occurred. GRI and ESRS both expect periodic reassessment but don't mandate annual full assessments. Conduct an annual desktop review to confirm the results still hold.