This informal CPD article, ‘Is Subjectivity Undermining Materiality' was provided by FBRH Consultants, who aim to help businesses gain value by operating in much cleverer, sustainable ways.
Best Practices for Objective Assessments
In the realm of ESG/ sustainability reporting, the materiality process plays a crucial role in identifying and prioritizing ESG/ sustainability issues that have significant impacts on a company's performance and stakeholder interests. However, the inherent subjectivity in this process can pose challenges and undermine the effectiveness of ESG/ sustainability strategies. Subjectivity arises from human judgment, interpretation, and biases, which can lead to inconsistency, lack of transparency, and misalignment with stakeholder expectations. As companies strive to navigate the ever-evolving landscape of ESG/ sustainability, understanding and mitigating the impact of subjectivity on materiality assessments becomes a paramount concern.
Subjectivity has the potential to skew the materiality process, creating an environment where key ESG/ sustainability issues may be either overlooked or inflated in importance. When ESG/ sustainability teams and stakeholders interpret and weigh the significance of different issues differently, it can lead to divergent priorities. As a result, some critical ESG/ Sustainability issues may be underrepresented or neglected entirely in ESG/ sustainability reporting, while other less impactful issues might receive undue attention. Such misalignment can result in a disconnect between the company's ESG/ sustainability efforts and the concerns of stakeholders, thereby eroding trust and credibility.
Moreover, subjectivity in materiality assessments can hinder the comparability of ESG/ sustainability reports across companies and industries. Without a standardized and objective approach to identify material issues, it becomes challenging to benchmark performance, assess industry peers, and track progress towards ESG/ sustainability goals. Investors, customers, and other stakeholders seeking consistent and reliable ESG/ Sustainability data may find it challenging to make informed decisions when materiality varies significantly from one company to another. This lack of comparability hampers the establishment of industry-wide best practices and impedes collective efforts to address global ESG/ sustainability challenges.
Data driven, transparent approach
To address the issue of subjectivity, companies must adopt a data-driven and transparent approach to materiality assessments. By leveraging established ESG/ sustainability reporting frameworks like the Global Reporting Initiative (GRI), SASB, and TCFD, organizations can align their assessments with industry standards and demonstrate a commitment to objective reporting. These frameworks provide a structured methodology and indicators that guide the identification and evaluation of material issues, promoting consistency and enhancing comparability.
Engaging Stakeholders and experts: A Key Strategy for Balanced Assessments
Involving a diverse group of stakeholders in the materiality assessment process is another essential strategy to mitigate subjectivity. By engaging investors, customers, employees, NGOs, and community representatives, companies can gain a more comprehensive view of the most relevant ESG/ sustainability issues. Stakeholder engagement fosters a sense of ownership and inclusion, increasing the likelihood that identified material issues truly align with the interests and concerns of all relevant parties.
The organization should consider consulting credible independent experts, such as national human rights institutions, human rights and environmental defenders, trade unions, and other members of civil society.