The potential of materiality: part 1. (The effect of GRI’s revisions on materiality)

An important guideline in the world of sustainability reporting is the Global Reporting Initiative (GRI). At the beginning of next year, GRI will publish its revised universal standards for sustainability reporting. Just before summer, a draft version has been published and the feedback round has been closed on September 9th, 2020. One of the themes that has been examined in this upcoming review is materiality. Not only are changes made in the definition of materiality, but also the process of identifying and evaluating materiality is rearranged. In this blog of our tetralogy on materiality, we discuss the potential we see in GRI’s renewed materiality process.

This process change consists of two parts: stakeholder involvement and the methodology used to assign the material topics. Previously, GRI proposed to engage stakeholders in the process of evaluating material topics according to their significance. In the current proposal, GRI advises stakeholders to already play a role in the process of identifying material topics, which is in a much earlier stage in the materiality process. In addition, the way to assess material topics has been changed. External stakeholders were previously asked to indicate which topic they thought was the most significant for the organization and internal stakeholders looked at the topics with which the organization made the most economic, environmental, and/or social impact. From now on, the focus will be on the negative or positive impact of a particular topic, in which the negative impact will be assessed based on severity and probability and the positive impact based on scale and scope. Besides, stakeholders will continue to play a prominent role in this.

However, what is the value of early stakeholder engagement? Since stakeholders are involved earlier in the process, greater involvement and more support of the material topics are expected. By implementing round table discussions, interactive workshops, and online questionnaires, more room for debate – and therefore mutual understanding and support – will be created. In addition, this timely – and perhaps also more frequent – involvement of stakeholders provides an interesting push for organizations to increase their attention towards material topics.

The change in the evaluation of material topics, and the distinction made between risks and opportunities, offers possibilities to further improve risk management in organizations. Because of the evaluation based on severity, probability, scale, and scope the assessment of material issues becomes more comparable to, for example, the assessment of climate risks. This is a positive side note since the Task Force on Climate-Related Financial Disclosures (TCFD) also advises the assessment of climate-related risks to be consistent with the methodology used to manage other types of risks. As a result of proposed GRI revisions, the evaluation of material topics will become more comparable with all types of risks. This results in a better streamlining of internal processes, identification of climate-related risks, and material topics.

All in all, we see a lot of added value in this revision. The adjustments ensure more intensive stakeholder engagement, more comparability for material topics and risks. Therefore, the step to sustainably integrate materiality in the internal business operations and strategy becomes smaller. Why is this such an important improvement? We’ll tell you all about this in the second part of our series ‘The potential of materiality: part 2 (the impact of COVID-19 on materiality)’, where we will discuss the strategic value of a materiality analysis.

Are you looking for support in executing a materiality analysis for your company? We can help! Send an email to Daniek or Lot or give us a call anytime.

Authors: Daniek Ehrismann & Anniek Bakker.

Would you like to know more about the topic of climate-related risks? Read our blog: ‘Climate change: will we let it surprise us?’)

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