What is materiality in the sustainability context?
Materiality is one of the most common concepts in the sustainability world. It is a concept that companies use to guide their sustainability strategic planning processes.
A material sustainability issue is an economic, environmental, or social issue on which a company has an impact, or may be impacted by. A Materiality analysis/Matrix is an exercise that helps an organisation determine which are the most important sustainability issues for that particular company and hence helps them prioritise efforts from the start.
It is important to draw a distinction between the concept of materiality as it refers to financial reporting, and the concept of materiality as it refers to sustainability. Sustainability reporting, unlike financial reporting, is currently a voluntary exercise and the overall process is largely left up to the company. With respect to financial reporting, information is deemed material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements (IASB Framework). In contrast, in the sustainability context, the term materiality refers to those issues that can have significant repercussions on the company (both positive and negative) and it is generally recognised best practice that a company report on the relevant (or ‘material’) issues that have a direct or indirect impact on its ability to create or maintain or erode economic, environmental, social value for itself, its stakeholders, the environment, and society at large.
There is no one way to conduct a materiality assessment. Many companies rely on external consultants to help them, while other companies, with more robust sustainability teams, manage the process themselves. Using an external consultant can sometimes add credibility to the process, and ensure that the company is not simply listing its well-managed issues as most material. Hiring external consultants can also help with collecting stakeholder feedback, as some stakeholders may be wary about speaking directly to the company, particularly on controversial topics.
Generally, the process for conducting a materiality assessment includes the following steps:
Source and read more: NYU Stern 2019
Why we have developed sector materiality maps
As generalist investors, we still have specific sectors that we often consider and where we have developed our expertise. These sectors are mainly software solutions with the potential to fundamentally disrupt and improve industries. In here, you find some if the superstars of the new economy: Spotify, Personio, Forto, and Einride to name a few.