Determining Material Topics for an Organization
Identify your Organization's Biggest Impacts with this Four-Step Guide
In today's world, it's increasingly important for organizations to be transparent about their sustainability practices. But with so many potential topics to cover, how can organizations decide what to prioritize? This is where the concept of materiality comes in.
Materiality is the process of determining which topics are most important to an organization's stakeholders and which have the greatest potential impact on the economy, environment and people. Here's a four-step process that organizations can follow to determine their material topics:
Understand the Organization's Context
The first step in determining material topics is to understand the organization's context. This means considering factors such as the organization's sector, size, location, and the overall impact of the industry. For example, a company in the energy sector may have different material topics than a company in the technology sector.
Organizations should also consider their own goals and values. For example, if an organization has a goal to reduce greenhouse gas emissions, then climate change may be a material topic for them. Understanding the organization's context will help to identify the topics that are most relevant to its stakeholders.
When reporting under The Global Reporting Initiative (GRI) standards, organizations are provided with a comprehensive set of guidelines for reporting on their sustainability practices. These guidelines are organized around specific topics that are relevant to a wide range of sectors and topics. By following these guidelines, organizations can ensure that their reports are consistent, transparent, and credible, and that they are reporting on the topics that are most important to their stakeholders. The GRI standards are widely recognized as the global benchmark for sustainability reporting, and they are used by thousands of organizations around the world. By adopting these standards, organizations can demonstrate their commitment to transparency and sustainability, and they can also benchmark their performance against other organizations in their sector.
Identify Actual and Potential Impacts
The next step is to identify the actual and potential impacts of an organization, in the context identified in Step 1. Impact refers to the effect an organization has on the economy, environment and people. At this stage, an organization will consider both the positive and negative impacts of each topic on the organization's stakeholders. For example, a company that produces electric vehicles may have a positive impact on the environment, but may also have negative impacts through the use of valuable minerals that use mines in Africa.
Organizations should consider both the direct and indirect impacts of each topic. Direct impacts are those that the organization has control over, such as its own operations. Indirect impacts are those that the organization may have influence over, but not direct control, such as the impacts of its supply chain.
Assess the Significance of Impacts
The third step is to assess the significance of the impacts identified in Step 2. This means considering the magnitude, scope, and likelihood of each impact. For example, a company that uses a lot of water in its operations may have a significant impact on water scarcity in the local area, especially if there is already a water shortage. It could also be, generally, what topics have the most carbon intensive materials and high emitting factors.
Organizations should also consider the temporal aspect of the impact. Some impacts may have a short-term effect, while others may have a long-term effect. For example, a company that produces single-use plastics may have a short-term impact on waste generation, but a long-term impact on the environment.
Prioritize Material Topics Based on Significance
The final step is to prioritize the material topics identified in Step 3. This means considering the significance of the impacts and the level of stakeholder interest in each topic. Organizations should prioritize the topics that have the greatest potential impact on the organization's long-term success and are most important to its stakeholders.
It's important to note that materiality is an ongoing process. As the organization's context and stakeholder expectations evolve, so too will its material topics. By following this four-step process, organizations can ensure that they are reporting on their material topics that matter most to their stakeholders and have the greatest impact.
Case Study: Shell’s Material Topics
By the end of 2022, Shell had reduced carbon emissions from their operations by 30% compared with 2016 on a net basis, more than halfway towards their target of a 50% reduction by 2030.
Here is the list of Shell’s GRI Sector Topics:
GHG emissions
Climate Adaptation, Resilience and Transition
Air emissions
Biodiversity
Waste
Water and effluents
Closure and rehabilitation
Asset integrity and critical incident management
Occupational health and safety
Employment practices
Non-discrimination and equal opportunity
Forced labour and modern slavery
Freedom of association and collective bargaining
Economic impacts
Local communities
Land and resource rights
Rights of indigenous peoples
Conflict and security
Anti-competitive behavior
Anti-corruption
Payments to governments
Public policy
