To start and guide the process of gathering relevant information and defining material topics for the sustainability report, the company needs to appoint a dedicated team. This process can be carried out by the company itself or, at least in part, delegated to a consultancy. To ensure an efficient and effective process, it is crucial for the board of directors and executive management to acknowledge and communicate the strategic importance of this process and its results.

 
Process of Materiality Analysis
Steps in the Double Materiality Analysis

The process for defining material topics for the company is outlined by various reporting standards. It usually follows six universally applicable steps and involves the sustainability reporting team, as well as internal and external stakeholders.

1. Context

The process starts with a context analysis. This includes knowing and understanding the relevant legal requirements for sustainability reporting, understanding the sustainability topics in the relevant markets, and describing the business model, supply chain, and stakeholders. These components define what kind of impact the company has, and which stakeholders are or could be affected and thus need to be involved in the process.

2. Impact and risk

In the next step, a long list of impacts on and exogenous risks to the company needs to be created. It is usually compiled from workshops and surveys involving a group of people from various business units, as well as external stakeholders. 

3. Stakeholders

It is important to engage with the stakeholders defined in the context analysis (see step 1). This is the only way to ensure that all significant impacts on the economy, environment, and society, as well as any risks, are being taken into full consideration, including with an outside-in view. This can take the form of an online survey for stakeholders, for example, or stakeholder focus group discussions. A given topic may become material for the simple reason that a significant proportion of external stakeholders classify it as such. Thus, engaging stakeholders gives the materiality analysis an additional dimension. The result of step 3 is a short list of material topics, including risks ranked according to their importance for the stakeholders and the company.

4. Validation

Once the short list of material topics is assessed, the sustainability team and other specialists in the company, as well as the board of directors and executive management, will validate and rank it. The outcome of the validation is a double materiality matrix or material topic list (see example below), which then forms the basis for the sustainability reporting.

5. Reporting

To help stakeholders such as investors, rating agencies, financial analysts, employees, and suppliers understand the process of non-financial reporting and to ensure the necessary credibility, the company must describe how the list of material topics was drawn up and how stakeholders were engaged in the process. This also includes disclosing a double materiality matrix or material topics list that describes not only the topics but also their ranking and importance for the company and stakeholders. This process description is a reporting requirement.

6. Review

Regularly reviewing material topics ensures they are always relevant. It is particularly important to update the material topics when regulatory reporting requirements change or when companies acquire or divest business units. A full materiality assessment from step 1 should be carried out every three to four years or within the regular strategy cycle of the company.

Example of a materiality list (extract of the impact on people):
Example of a materiality matrix:
Material TopicsSubtopics
People 
Client experience
  • Excellence
  • Above-average performance
  • Best services
Diversity, equity, inclusion
  • Diverse workforce
  • Fair and inclusive workplace
  • Equal employment conditions and opportunities
Digital transformation
  • Cyber risks
  • Front-to-back digitalization to deliver a seamless client experience
  • Technology as differentiator
  • Digital culture and workspaces
  • Integrated digital product and service offering
  • Data management
Talent management
  • Employer branding and talent attraction
  • Employee training
  • Internal mobility
  • Management of talent pipeline and succession planning
  • Talent and leadership development
  • Apprenticeship and vocational training
Workplace culture and environment
  • Purpose and cultural framework
  • Hybrid and flexible work arrangements
  • Occupational health and well-being
  • Employee listening and engagement
  • Volunteering
Compensation and performance management
  • Compensation framework
  • Executive pay
  • ESG in performance management and compensation
  • Pay equality
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