Driving Strategic Sustainability: Why Materiality is Key
When it comes to sustainability, knowing what to focus on is half the battle. That’s where materiality assessments come in. Materiality is your map, showing where your efforts can have the greatest impact, both for your business and the world around it.
In this guide, we unpack what a materiality assessment means, why double materiality is fast becoming the gold standard and how to get the most value out of the process, from compliance to strategy and everything in between.
Why materiality is evolving
In recent years, materiality assessments have become a cornerstone of many sustainability standards, including mandatory ones such as the European Sustainability Reporting Standards (ESRS) and voluntary frameworks like the Global Reporting Initiative (GRI), the International Sustainability Standards Board (ISSB) standards and B Corp.
The concept itself isn’t new. It comes from financial reporting, where financial materiality has long been used to determine what’s relevant to decision-makers. What has changed is how different frameworks interpret and apply the concept. Some focus on what affects a company’s value (financial materiality), while others look at the company’s broader impacts on people and the planet (impact materiality). Increasingly, there is a move toward convergence: GRI and ISSB are working on interoperability; the ESRS makes double materiality a legal requirement; and even investor-focused standards acknowledge the importance of considering the broader context.
This brings both challenge and opportunity. As expectations rise and guidance becomes more rigorous, companies will need more structured and transparent materiality processes. At the same time, they will benefit from stronger peer benchmarks and a growing understanding of what good looks like.
What is a materiality assessment and why undertake one?
A materiality assessment is the process by which a business identifies and prioritises the environmental, social and governance (ESG) issues that matter most. Many standards adopt one of two lenses.
Financial materiality
An issue is considered material if it impacts the company’s financial performance (financial materiality). For example, IFRS S1 and S2, developed by the ISSB, require companies to disclose sustainability-related risks and opportunities that could reasonably affect their enterprise value. This financial materiality approach is designed to meet the needs of investors and capital markets.
Impact materiality
Impact materiality is when the company’s activities have significant effects on the economy, people, or the environment. Frameworks such as GRI and the new B Corp standards focus on a business’s effects on society and the environment, encouraging companies to take responsibility for those impacts.
Double materiality
The ESRS, under the Corporate Sustainability Reporting Directive (CSRD), marks a significant step forward by mandating a double materiality approach. This requires companies to assess and report on both financial and impact materiality, recognising that a company’s impacts on society and the environment can, in turn, influence its financial performance.
While compliance with reporting standards is a clear driver for undertaking a materiality assessment, the strategic benefit should not be underestimated:
- Sharper focus and better resource use: it helps identify which sustainability issues are most relevant to your business context, so you can allocate time and budget where it matters most. This minimises wasted effort, ensures your reporting is grounded in substance and reduces the risk of greenwashing.
- Stronger integration with core strategy: it enables ESG and impact considerations to be embedded into business planning, risk management and governance. This helps build alignment between sustainability priorities and commercial objectives.
- Improved stakeholder relationships and insight: the process creates a structured opportunity to engage with stakeholders, surfacing valuable external perspectives and strengthening relationships and trust over time.
Depending on your specific drivers, focusing on either financial or impact materiality may be sufficient. However, in our experience at Greenheart, a double materiality approach delivers the most value and impact. It not only meets industry best practice but also reveals the connections between your impacts and the risks and opportunities they create. This offers a more complete view of the issues that matter and positions your business to respond proactively to change.
Key steps in the materiality assessment process
Whether we are applying single or double materiality, the steps of the assessment process are broadly the same. What matters is that the process is structured, evidence based and tailored to your business context.
1. Understand the company context
The first step is to develop a thorough understanding of your business’s activities, value chain and stakeholder landscape. We always look to leverage existing work, such as strategies, risk registers or environmental assessments. A well-grounded materiality assessment builds on what is already known and avoids duplication by identifying and addressing any gaps.
2. Identify impacts, risks, and opportunities (IROs)
We then identify the full range of sustainability topics that are relevant to the business. This includes actual and potential:
- Impacts on people and the environment (impact materiality)
- Risks and opportunities to your business (financial materiality)
For example, on the topic of climate change, a company may have a negative impact such as greenhouse gas emissions, a positive impact such as investment in renewables or nature-based solutions and face business risks and opportunities such as exposure to carbon pricing or increased demand for low-carbon solutions from customers.
3. Engage stakeholders
Stakeholders may include anyone affected by or with influence over your business: employees, suppliers, investors, communities, civil society groups or the environment. You are likely already engaging some of them informally, but the materiality assessment is an opportunity to do this more systematically.
It’s also important to include underrepresented or “silent” stakeholders. Where direct engagement is not possible, we seek input through credible intermediaries such as NGOs or specialist organisations that represent those groups or environmental interests.
4. Assess and prioritise what’s material
With impacts, risks and opportunities identified, we assess their materiality. This involves:
- For impact materiality, evaluating severity (scale, scope and whether the impact can be remedied) and likelihood.
- For financial materiality, assessing the likelihood and potential magnitude of effects on the business over short-, medium- and long-term time horizons.
5. Disclose and integrate findings
With material topics prioritised, the next step is to determine how you will report them. This includes meeting mandatory legislative requirements under frameworks such as the ESRS or ISSB, as well as voluntary disclosures relevant to your stakeholders. Equally important is what you do next. Materiality should not be a one-off compliance task but should become a regular, if not continuous, exercise. It should inform how you manage key topics, set targets, assign ownership and communicate progress over time.
6. Build strategic foundations
Finally, we use the insights from the materiality assessment to support the development or review of sustainability strategy. A strong assessment provides a robust foundation for setting direction, aligning teams and guiding investment in sustainability. To achieve this, leadership and internal buy-in is essential. Involving senior leaders and key internal teams early and throughout the process helps build ownership and makes it easier to embed material topics into planning, budgeting, risk management and communications once the assessment is completed.
Our advice for making the most of a materiality assessment
We’ve been advising clients on materiality assessments for years, continually refining our approach in line with evolving standards and best practice. Based on our experience across sectors, here is our advice to help you get the most value from the process:
1. Be clear on your drivers and desired outcomes
Why you are undertaking a materiality assessment, and what you want it to achieve, should inform both the method and the level of depth. For example, if your primary driver is regulatory compliance, you will need to invest in robust documentation and clear traceability of results.
If you are working towards meeting the new B Corp standards on Purpose and Stakeholder Governance (PSG 2.3 and PSG 2.4), impact materiality alone is sufficient. However, a double materiality approach would still offer significant strategic value.
2. Be realistic about your resources and find the right partner
Be clear about your level of ambition, your internal capacity and where external support may be needed. You might have a capable team that just needs coaching and upskilling the process.
However, if internal resources are limited, it’s worth investing in the right support to get the process right. If budget is a constraint, a phased approach can work effectively, ensuring each step is designed and delivered meaningfully.
3. Build a robust methodology and document everything
Your methodology will never be absolutely perfect, and that’s fine. What matters is that it is well thought through, consistent and clearly documented. Even if you are not being audited, transparency supports internal alignment, future reviews and continuous improvement. Good documentation also helps ensure the process is repeatable.
4. Embed stakeholder engagement
Materiality assessments are a valuable opportunity to formalise stakeholder engagement. Over time, regular engagement should become part of how your business operates. This is stakeholder governance in action. Use the conversations initiated during the assessment to deepen relationships and build collaboration.
At a minimum, this means engaging stakeholders on the outcomes of your assessment. In future, with established and consistent engagement mechanisms in place, you will be able to revisit your materiality with minimal need for additional assessment-specific stakeholder input.
5. Prioritise next steps
The value of a materiality assessment lies less in the results themselves and more in what you do with them. Do not let your materiality report gather dust; prioritise the next steps. When done well, a materiality assessment provides a goldmine of insight and a solid foundation for your sustainability strategy. The key is to translate the findings into action and integrate them across the business.
Conclusion: double materiality as a strategic investment
Materiality assessments are sometimes perceived as box-ticking exercises, overly subjective or too resource-intensive. In our view, these challenges reflect how the process is approached and delivered, not the value of the concept itself.
Done well, a materiality assessment is a strategic tool. It offers a structured opportunity to identify what truly matters for your stakeholders, your business model and your long-term resilience. It helps you meet regulatory obligations with confidence and align sustainability with commercial priorities. Double materiality is especially valuable because it connects your external impacts with the risks and opportunities they create for the business.
The first assessment may feel like a significant investment. And if treated as a one-off exercise, it probably will be. But with the right approach and a partner like Greenheart, it becomes a long-term investment – one that builds internal capability and gives you the tools to manage materiality as a living process that informs strategy, guides decisions and supports progress over time.
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