Every business needs to establish sustainability goals and initiatives that are rooted in their unique combination of organizational priorities. Investors want to see standardized approaches to sustainability and comparable outcomes, but there’s no one-size-fits-all approach to sustainability. The specific sustainability opportunities and risks that are most important to your organization will be unique to your operations, values, and stakeholders.
A sustainability materiality assessment helps you determine the degree to which various sustainability risks and opportunities would impact your organization, as well as how much they matter to stakeholders. It’s a crucial process for any organization, regardless of whether you set goals and started initiatives years ago, or you’ve only recently begun exploring what sustainability might look like for your organization.
In this guide, we’ll cover what businesses need to know about sustainability materiality assessments, including:
- What a materiality assessment is
- Why materiality assessments matter
- How to conduct a materiality assessment
- An example of a materiality assessment
What is a sustainability materiality assessment?
Sustainability materiality assessments are used to determine how significant various sustainability topics are to a specific organization. These assessments identify relevant factors, then gauge their impact (positive or negative) on the organization and their importance to key stakeholders.
A given sustainability opportunity’s “impact” is typically a generalization that considers its likely financial, operational, and legal implications. For example, if a sustainable pursuit is a requirement for compliance with environmental regulations, it should be considered higher impact due to the potential legal costs and reputational risk of non-compliance. Hardening infrastructure and improving your operation’s resilience would be similarly high impact due to the associated costs. “Impact” can encompass an opportunity’s effect on your bottom line, employee satisfaction, marketability, appeal to investors, reputation, and more.
This process should also help you understand the relationship between various sustainability activities, so you can connect them to broader initiatives and goals. Improving operational resilience, for example, is more of a category of opportunities than a specific action. Depending on the scope and level of detail you want your materiality assessment to cover, you might stay this broad, or you might use resilience as a grouping shared by individual actions like retrofitting facilities with weather-resistant materials, investing in more efficient equipment, sourcing sustainable energy, or relocating operations to milder climates.
The assessment results in a list of sustainability actions which have been scored or ranked according to both impact and perceived value. Organizations should use this list to inform a comprehensive sustainability strategy, sustainability goals, and specific initiatives.
The importance of materiality assessments
Companies can pursue sustainable practices and even develop a sustainability strategy without a materiality assessment. Perhaps you already have. But wherever you are in your sustainability journey, a materiality assessment can give you more confidence in your approach to sustainability and reveal potential issues, giving you rationale to redirect efforts to more fruitful areas. Here are some of the key benefits of materiality assessments.
Set appropriate sustainability goals
A sustainability task force, board, or even an individual can set sustainability goals for an organization by any number of sustainability assessments and decision-making processes. But part of the purpose of a materiality assessment is to collect input from a wide range of stakeholders. It may also give them the flexibility to consider all relevant opportunities rather than a shortened list of actions the organization is already pursuing.
In short, it helps organizations determine which activities are most practical and which have the most buy-in, so they can set the most relevant sustainability goals in a methodological manner.
Demonstrate buy-in for addressing sustainability risks
Many sustainability goals and initiatives require long-term investment. As a result, they tend to get deprioritized in favor of short-term actions that have a faster pay-off. This can put organizations in a state of perpetually putting off some of their most important goals, and over time, can lead to a loss of competitiveness and much greater sustainability risk. Steps to make your operations more resilient, for example, are often costly, and it can sometimes be difficult to understand the return on investment.
A materiality assessment equips you to show decision-makers how stakeholders prioritize potential actions, and you may find that everyone places high value on a long-term process that you’ve had trouble getting traction on. Perhaps incremental steps have been shot down in the past, maybe even due to assumptions that the organization would care more about other options.
Alternatively, maybe someone (or a group) has been trying to start a sustainability task force or get the organization to take its first steps toward sustainability. A materiality assessment could reveal where there’s the most demand for sustainable action in your organization.
Increase organizational alignment
Sometimes goals and initiatives are born entirely out of the interests or preferences of a single decision maker. Or they’re driven by a sole focus on ROI and the bottom line. A materiality assessment helps you prioritize sustainability activities around both the impact to your organization and the values of your stakeholders. Where values and impact diverge, you can find the opportunities that provide the best balance.
Some materiality assessments consider employees (or their representatives) to be stakeholders, giving non-leadership personnel more input into the organization’s priorities. By involving more people in the process and establishing goals and initiatives according to stakeholder values, you can further increase organizational alignment as you work toward sustainability.
Prepare for compliance
A materiality assessment certainly doesn’t make you compliant with environmental, social, and governance (ESG)-related regulations. But it can be an important step toward compliance and sustainability reporting by helping your organization assign value to the required actions and weigh the impact of compliance against the potential outcomes of other ESG opportunities.
How to conduct a materiality assessment
Completing a materiality assessment is a straightforward process, but like many aspects of sustainability risk management, it can take a significant time investment. When we conducted our first sustainability materiality assessment at Tango in 2024, we used four distinct phases:
- Market benchmarking and trend analysis
- Identification of material topics in alignment with GRI and SASB standards
- Focused interview and engagement surveys with stakeholders
- Summary and evaluation
However, depending on your organization’s circumstances and how early you are in the process, you may need to think of the process in more general incremental steps. Here’s how it works.
Determine the scope of your assessment
Before you dive into your assessment, it’s important to define your scope. For small and mid-sized businesses, this is generally pretty straightforward. But when you have hundreds or thousands of locations distributed across multiple regions or countries, you’ll need to decide whether this assessment should apply to all of your locations or just a specific country. This will directly affect which stakeholders should be involved, as well as the opportunities available for your consideration.
This step should also involve deciding how granular your assessment will be. You may wish to only include high-level topical areas (like employee attraction and retention or client satisfaction), or you may want to consider specific action items, like installing AC, replacing inefficient vehicles, or adding specific types of training. This decision should be based on who your stakeholders are and whether your organization already has sustainability goals and initiatives in place.
Research current sustainability trends, benchmarks, and norms
As you look to the future of sustainability at your organization, it helps to know what others are focusing on within your industry, your local communities, and the broader economy. Are your biggest competitors making the same types of investments in sustainability? What kinds of goals, initiatives, and practices are typical for your industry? What does sustainability look like in the areas where you operate? Public disclosures, media reports, lawsuits, and sustainability benchmarks can guide you toward relevant areas to consider in your materiality assessment.
Choose your sustainability guidelines
Investors want to see standardized approaches to sustainability. But unfortunately, organizations have to choose from hundreds of frameworks, standards, and regulations as they consider what sustainability will look like for them. And often, companies will select a combination of guidelines that feel best aligned with their intentions and desired outcomes. Still, some standards are more widely used than others, and they are in the process of converging.
The guidelines you choose will directly affect what sorts of sustainability opportunities make the most sense to include as options in your materiality assessment. Different reporting standards (like the standards from the International Sustainability Standards Board) will shift your emphasis toward different areas.
Analyze and group opportunities
While you could come up with hundreds of opportunities, you want to produce a manageable list for your stakeholders to consider. You certainly don’t have to evenly distribute opportunities across each category of ESG (environmental, social, and governance), but you may want to aim for 5–10 options in each category. Your goal should be to identify the opportunities that are most relevant to your organization and the benchmarks, standards, and frameworks you intend to use as a guide. For example, we made sure our material topics aligned with GRI and SASB , and we included the following opportunities:
| Environmental | Managing our energy efficiency |
| Managing our water consumption in data centers | |
| Managing our GHG emissions | |
| Product innovation to enable client decarbonization | |
| Social | Training and education |
| Talent attraction & retention | |
| Board diversity | |
| Flexible working environment | |
| Talent, nondiscrimination, diversity, and inclusion | |
| Governance | Procurement practices |
| Business ethics and systemic risk management | |
| Managing the legal and regulatory environment | |
| Anti-corruption | |
| Data security & customer privacy | |
| Client satisfaction |
Identify stakeholders
A materiality assessment typically involves a wide range of stakeholders from across your organization. They don’t necessarily need to represent every department, but it’s worth thinking about the positions and perspectives you want to influence your organization’s decisions. Obviously, if you have ESG-related roles like a sustainability committee or task force or enterprise risk management team, they should have input in the assessment. You’ll likely want to include your executive team, board members, and positions that oversee budgets and manage major assets.
It’s also worth thinking about more general employee sentiment. An average employee shouldn’t have the same input as an executive but including them in a survey can help people feel more invested in the outcome and give you a better sense of which areas employees are most concerned about. You may want to simply take average scores of all the included employees and use that average score as a single input in the final assessment.
Depending on your situation, it may be important to include (or even prioritize) external stakeholders. For example, if you’re seeking investment from a particular group, it would be valuable to know how they would like to see your organization prioritize sustainability opportunities.
Collect feedback from stakeholders
Once you’ve developed a list of material topics and finalized your stakeholders, it’s time to work through the list with them. You’ll want each major stakeholder to either assign each topic a score (such as 1–5) or rank, so you could simply send out a survey, or you can conduct interviews to get more detailed responses.
Interviews will often be most helpful if you want more perspective about the differences between stakeholders’ priorities, but this may mean allowing more time to complete your assessment. If you plan on including input from a large pool of employees, a survey makes the most sense, but it could also be worth conducting small group discussions with specific teams and departments to understand employee sentiments.
Rank business impact
You could ask stakeholders to separately rank or score the value they place on a given topic and their perception of its impact on the organization (positive or negative), but ideally, your assessment of each topic’s impact should primarily be rooted in quantitative data, and a collection of opinions will likely misrepresent the actual impact. However, interviews about the implications each topic has for various aspects of the organization could be helpful, particularly for areas where quantitative data is either difficult to collect or imprecise.
However, some of your major stakeholders will likely be involved in evaluating the business impact of each topic anyway, as they may be best suited for collecting or analyzing the quantitative data. Some materiality assessments may use timelines instead of costs, focusing on the length of time a goal or milestone would take to accomplish. In our report, we evaluated each topic’s impact in terms of revenue exposure.
Visualize the results
After you’ve collected your data, you want to present your average scores or rankings of each topic in relation to its impact. The most common way to do this is by using a materiality matrix, which places the value to stakeholders on one axis, and impact on the other, then positions each topic accordingly. There are many ways to format your materiality matrix, but the important part is to ensure that you visually represent the relationship between each material topic.
You might simply use quadrants that create a basic high/low contrast on each axis. Or, like we did in our materiality assessment, you might use three rows and three columns to allow for more middle ground. Some of these “matrixes” aren’t true matrixes and are essentially just line graphs. Or they use sectors to help illustrate where each topic falls. Any of these methods is fine, so long as it intuitively communicates topical significance.
After this step, anyone should be able to look at your materiality matrix and recognize which areas matter most to your organization, and what the expected impact would be of pursuing it.
Establish goals and timeline
A materiality assessment should guide your sustainability strategy and lead you to actually decide which sustainability opportunities you’re going to move forward with. You now have a visual representation of how stakeholders would prioritize sustainability topics and how various topics will impact your business. Within each of these areas, you can start developing initiatives and setting achievable, measurable goals.
Using the United Nations’ Sustainable Development Goals as a framework, we came up with goals like these based on our materiality assessment:
- Reach carbon neutrality by 2025, and Net-Zero emissions by 2030.
- Achieve a 50/50 male-to-female employee ratio and increase the number of women in senior leadership roles.
Note: Some organizations use materiality matrices to compare stakeholder priorities against a presumed timeline (in years) for achieving success in a given area, rather than the topic’s “impact” on the business. This can be a helpful way to compare topics as you begin setting targets and considering specific initiatives.
Define how you’ll track progress
Some sustainability metrics are pretty straightforward and easy to track—like harassment complaints, lawsuits, or customer satisfaction scores. But many environmental sustainability metrics are particularly difficult to measure and monitor and require specialized tools like Tango Energy & Sustainability by WatchWire.
One of the biggest challenges with monitoring environmental sustainability targets is inaccurate data, which becomes more problematic at scale. Across your portfolio, your locations may have hundreds or thousands of utility providers, all of which may use different formats for billing and energy consumption data. And every billing cycle, some of these providers are bound to introduce common errors like duplicate data or gaps in billing cycles, making your aggregate data unreliable. Tango consolidates and standardizes your bills automatically, and flags these common errors when they occur, making it easier for you to analyze your energy consumption, compare locations, and track progress toward sustainability goals.
Whatever goals emerge from your materiality assessment, it’s essential to assemble a system with the capabilities to monitor your progress, so you’re equipped to actually reach them.
Sustainability materiality assessment example
Sometimes it helps to walk through an example. Instead of using a hypothetical situation, we can look at the materiality assessment Tango conducted in early 2024.
For our assessment, we conducted interviews and distributed surveys to stakeholders across all levels of our company. We provided them with an exhaustive list of sustainability risks and opportunities that influence our customers, business, access to finance, and cost of capital over varying timeframes. Every topic we selected was in line with UN sustainable development goals (SDGs), SASB, GRI, CDP Disclosures, and the S&P Materiality Maps.
Rather than simply asking stakeholders to prioritize issues based on their perceived value or importance, our stakeholders ranked them on two distinct risk considerations:
- Financial risk: The potential impact on Tango’s business operations, reputation, and financial performance.
- Impact risk: Adverse and beneficial effects Tango has on the environment, people (employees, suppliers, and partners), and society.
Then we used a composite of these scores to establish the “significance to investors” along the y axis of our materiality matrix, and we used “revenue exposure” (impact to our revenue or business value) on the x axis.
In our summary, we acknowledged that while all of the assessed topics are important and interconnected, some have greater importance to stakeholders and have a greater impact on our bottom line. In our case, the areas with the greatest alignment were:
- Data security & customer privacy
- Client satisfaction
- Product innovation to enable client decarbonization
Your materiality assessment may look nothing like ours. And it probably shouldn’t. But your organization can still follow a similar process to conduct a sustainability materiality assessment that’s unique to your company, your values, and your impact on the world.
How Tango can help manage your energy & sustainability
Tango Energy & Sustainability by WatchWire consolidates utility data from disparate providers and automatically audits that data. Analyze consumption patterns, forecast demand, track progress toward goals, generate reports, and more to keep energy costs low and keep you on track to meet sustainability goals and reporting deadlines.