Materiality Documentation Review: Step-by-Step Guide

Materiality documentation is essential for identifying and prioritising ESG (Environmental, Social, and Governance) issues that impact businesses and stakeholders. This process ensures organisations align with regulatory standards like ISSB and CSRD while addressing stakeholder expectations. A well-structured review can improve ESG reporting accuracy, compliance, and decision-making.

Key Takeaways:

• What it is: Materiality documentation identifies ESG factors influencing business performance and stakeholder relationships.

• Why it matters: Aligns with frameworks like CSRD (double materiality) and ISSB (single materiality), ensuring compliance and stakeholder trust.

• Benefits: Companies integrating ESG into strategies see up to 20% financial performance growth.

• Challenges: Manual processes risk errors; automation ensures accuracy, scalability, and audit readiness.

5-Step Review Process:

1. Define Purpose and Scope: Set objectives, identify stakeholders, and determine focus areas (financial or double materiality).

2. Identify Material Topics: Consult internal and external sources, group topics into categories like governance or emissions.

3. Assess and Prioritise: Use scoring systems and stakeholder input to rank ESG topics based on importance.

4. Engage Stakeholders: Validate findings through surveys, meetings, and focus groups.

5. Document and Finalise: Create clear, audit-ready records, secure management approval, and establish a review cycle.

Automation vs. Manual Processes:

• Manual Risks: High error rates, limited scalability, and poor audit trails.

• Automation Benefits: Reduces errors, integrates ESG data with financial systems, and ensures compliance with evolving regulations.

Organisations using structured, technology-driven approaches not only meet compliance requirements but also strengthen decision-making and long-term growth opportunities.

8 Steps to Conducting an ESRS Double Materiality Assessment

Key Regulatory Materiality Requirements

Regulatory standards for ESG reporting have evolved significantly, with key frameworks now shaping compliance requirements. Understanding these frameworks is essential for creating documentation that not only meets legal standards but also addresses the expectations of stakeholders effectively.

Overview of Global ESG Standards

Three major frameworks currently guide ESG reporting: ISSB (IFRS S1 & S2), CSRD, and GHGP. Each framework introduces specific guidelines that organisations must adhere to when preparing their materiality documentation.

The International Sustainability Standards Board (ISSB) focuses on investor-centred "single materiality." This approach examines how ESG factors impact a company's financial performance and shareholder value. While ISSB standards are voluntary in most regions, adoption is growing as investors demand greater transparency and accountability.

The Corporate Sustainability Reporting Directive (CSRD) takes a broader "double materiality" approach, examining both financial and impact materiality. This framework is mandatory for companies meeting EU thresholds and requires compliance with the European Sustainability Reporting Standards (ESRS), which cover a wide array of ESG topics.

The Greenhouse Gas Protocol (GHGP) provides the foundational standards for reporting greenhouse gas emissions. Both ISSB and CSRD reference GHGP principles. For example, ISSB’s IFRS S2 mandates measurement of Scope 1, 2, and 3 emissions using GHGP guidelines, while CSRD also requires emissions reporting aligned with these principles. Beyond these frameworks, California’s SB-253 law also mandates GHG reporting in line with the GHGP.

For companies operating in multiple jurisdictions, understanding how these frameworks overlap and interact is vital. Many organisations face the challenge of complying with more than one standard at a time, making robust materiality documentation a necessity for efficient and accurate reporting.

These frameworks go beyond compliance - they highlight the importance of aligning documentation with stakeholder expectations, creating a foundation for effective ESG strategies.

Aligning Documentation with Stakeholder Needs

To meet these standards, organisations must incorporate stakeholder input into their materiality documentation. This isn't just about ticking boxes for compliance - it’s also about aligning ESG efforts with broader business goals and stakeholder priorities.

The financial rewards of such alignment can be substantial. Research shows that companies conducting thorough materiality assessments experience a 4.6% increase in market value. Both ISSB and CSRD stress the importance of stakeholder perspectives. CSRD’s double materiality framework requires engagement with a diverse range of stakeholders to address both financial and societal impacts, while ISSB’s single materiality approach primarily targets investor concerns.

Using a mix of quantitative and qualitative methods - such as surveys, interviews, and focus groups - can help capture insights that may not be evident from internal data alone. This approach ensures materiality assessments are both compliant and strategically relevant.

"A well-executed materiality assessment is fundamental to effective ESG strategy." - Esgrid

Materiality assessments should not be static. Organisations need to treat them as dynamic documents, updating them regularly to reflect changes in the business landscape or evolving stakeholder concerns. For companies seeking to simplify this process, financially-integrated sustainability management approaches offered by neoeco can help combine stakeholder data with financial reporting systems, ensuring comprehensive and audit-ready documentation across multiple frameworks.

The most successful organisations go a step further by embedding stakeholder insights directly into their strategic goals. They set clear action plans and define measurable objectives to track progress. By doing so, materiality documentation becomes more than a compliance tool - it transforms into a strategic asset that drives sustainable growth and long-term success.

Step-by-Step Guide to Materiality Documentation Review

To align with regulatory standards and create a solid base for ESG reporting, having a clear review process is key. Below is a structured five-step guide to help you navigate the review of materiality documentation effectively.

Step 1: Define Purpose and Scope

Start by outlining the goals and boundaries of your materiality review. This step sets the tone for the entire process and ensures resources are used wisely.

Define specific objectives for the review. These could include identifying major ESG risks and opportunities, refining your sustainability strategy, or informing broader business decisions. The Global Reporting Initiative highlights the importance of materiality in determining which topics are critical for reporting:

"Materiality is the principle that determines which relevant topics are sufficiently important that it is essential to report on them." – Global Reporting Initiative (GRI)

Know your audience from the start. Whether it's the board, investors, regulators, or sustainability report readers, understanding who will use the results shapes how you structure your documentation and prioritise stakeholders.

Clarify the organisational scope by deciding which regions, business units, or subsidiaries will be included. Determine if your focus is on single materiality (financial impact) or double materiality (financial and societal impact). Keep the scope practical, considering your available resources like time, budget, and expertise. Early involvement of stakeholders can help identify risks or concerns that might influence the process.

Step 2: Identify and Categorise Material Topics

Gather a comprehensive list of material topics by consulting industry standards, peer reports, and internal evaluations. This ensures no critical ESG issues are overlooked.

Compile topics from diverse sources such as regulatory guidelines, industry frameworks, competitor reports, and internal risk assessments. Look across your entire value chain - from suppliers to end-of-life product impacts.

Engage with internal teams, including finance, operations, legal, HR, and sustainability departments. Their varied perspectives can reveal material topics that might otherwise go unnoticed.

Group topics into categories using language familiar to your organisation and stakeholders. Common groupings include environmental impact, governance practices, social responsibility, and economic performance. Incorporating external viewpoints - like those of customers, investors, and regulators - ensures your documentation reflects broader concerns, not just internal assumptions.

For companies with intricate supply chains, consider how Scope 3 emissions tracking fits into your materiality assessment, as these indirect emissions often make up a significant part of environmental impact.

Step 3: Assess and Prioritise Topics

Turn your list of topics into a strategic framework by assessing and ranking their importance.

Use surveys, interviews, and focus groups to gather input from stakeholders. External stakeholders can highlight what matters to them, while internal teams can prioritise topics based on business relevance.

Evaluate the impact of each topic across economic, social, and environmental dimensions. Consider both positive and negative effects, as well as immediate and long-term implications for your organisation and its stakeholders.

Develop a scoring system tailored to your organisation's needs. Many companies use materiality matrices that plot stakeholder importance against business significance. Ensure your scoring method aligns with the reporting frameworks you follow, such as ISSB or CSRD.

Set thresholds to decide which topics are material. These thresholds should be transparent, defensible, and well-documented to meet audit requirements. Integrate this process with your existing risk management systems to ensure continuous monitoring of material topics.

Step 4: Engage Stakeholders and Validate Findings

Engaging stakeholders strengthens the reliability of your materiality review, ensuring it reflects genuine priorities and business realities.

Identify key external stakeholders - such as customers, suppliers, investors, regulators, and community groups - who can provide valuable feedback. Use existing channels like customer surveys, investor meetings, and supplier evaluations to collect insights efficiently.

Share your preliminary findings with stakeholders to validate your conclusions. This step helps identify gaps, confirm priorities, and build trust in your documentation. Publicly sharing results and providing updates demonstrates your commitment to addressing material issues.

Step 5: Document, Organise, and Finalise

The final step is to compile your findings into clear, audit-ready documentation that supports both compliance and strategic planning.

Secure senior management approval by presenting your findings to the board. This ensures alignment with corporate strategy and secures the necessary resources to address material topics. Executive endorsement also adds credibility with stakeholders.

Structure your documentation to clearly explain your methodology, findings, and reasoning. Include details about stakeholder engagement, assessment criteria, and how materiality thresholds were set. This transparency not only meets audit requirements but also builds stakeholder confidence.

Review your findings across different reporting frameworks and invite feedback from stakeholders. This feedback loop ensures continuous improvement and keeps stakeholders engaged. Document the entire review process, including decisions made and alternatives considered. This creates a solid audit trail and provides valuable context for future assessments. Establish a regular review cycle to keep your materiality documentation up to date as ESG priorities evolve.

Best Practices for Materiality Documentation

Building on the step-by-step review process, these practices ensure your materiality documentation aligns with regulatory standards and meets stakeholder expectations. With investors paying closer attention, maintaining high-quality documentation is more important than ever.

Audit-Ready Documentation

To meet auditor and regulator expectations, your documentation must be clear, detailed, and traceable. Every decision, methodology, and conclusion should be recorded in a way that can withstand scrutiny.

Key elements include outlining internal controls, processes, policies, and methodologies, along with supporting evidence. Clearly document how material topics were identified, assessed, and prioritised. This should include details about stakeholder engagement methods, scoring criteria, and the rationale behind threshold settings.

Accountability is also critical. Record who participated in each stage, their qualifications, and how potential conflicts of interest were managed. This demonstrates strong governance and provides transparency.

Establishing an ESG steering committee with internal auditor involvement can further strengthen the process. This committee can integrate materiality assessments into broader risk management frameworks. As noted in EFRAG’s guidance:

"FAQ 12 of EFRAG's IG 1: Materiality Assessment Implementation Guidance notes that 'it is reasonable to expect a certain level of documentation to be needed for internal purposes' and to 'help assurance providers to perform their work.'"

Address challenges such as data gaps or disagreements among stakeholders to enhance the credibility of your documentation.

Finally, consider leveraging technology to improve consistency and reduce manual errors.

Using Technology for Automation

Once solid documentation practices are in place, automation can take your materiality assessments to the next level. As reporting requirements become more complex, manual processes may no longer be practical. Digitising ESG systems ensures an auditable data trail, reduces human error, and improves consistency.

Modern platforms simplify the entire materiality review process. For example, solutions like neoeco's financially-integrated approach offer tools that align with global standards such as ISSB and CSRD. These systems not only automate data validation but also maintain detailed audit trails and version control, ensuring accuracy while reducing administrative burdens.

Automation also allows for more frequent monitoring of material topics. As Marjella Lecourt-Alma, CEO and co-founder of Datamaran, explains:

"Materiality is not static, and companies need a way to continuously monitor and refine their ESG priorities without repeating a cumbersome, manual materiality assessment every time."

Avoid relying on temporary fixes like spreadsheets, which can compromise long-term quality. Daan Smulders, Partner Technology Risk EV, warns:

"Workaround solutions (such as spreadsheets) are to be avoided for generating ESG information. It may be a solution in the short term but will probably turn out to be disappointing in the longer run. One reason for this is that the bar for assurance by third parties will be raised throughout time. Workarounds will probably be insufficient to live up to the quality expectations at that point. This will then be a clear case of penny-wise pound foolish."

Creating a Repeatable Review Cycle

A systematic, annual review process ensures your materiality documentation stays relevant and up to date. Conducting these assessments annually, with input from diverse stakeholders, embeds them into your organisation’s governance calendar.

Standardise methodologies, templates, and approval processes so each review builds on the previous year’s work. This approach saves time and ensures consistency. If no significant changes occur, document your rationale for maintaining the same material topics - this demonstrates due diligence to auditors and stakeholders.

Flexibility is key. Your process should adapt to regulatory changes or major business developments. For instance, in 2023, Unilever Group identified new risks and opportunities related to climate change, such as reduced crop output increasing raw material costs, while also recognising growth in demand for plant-based foods.

Efficiently engage subject matter experts using automated workflows and audit-ready documentation. Maintaining a centralised source of truth, complete with detailed records and audit trails, supports both annual reviews and interim updates.

Over time, a well-structured, repeatable review cycle becomes more than just a compliance tool - it enhances decision-making and adds strategic value throughout the year.

Manual vs. Automated Review Processes

Understanding the differences between manual and automated review processes is crucial, especially when it comes to materiality documentation. The choice you make here directly impacts efficiency, accuracy, and compliance with evolving regulations.

Marc Hobell, director and general manager of ESG Software at UL Solutions, captures the challenge of keeping pace with regulatory changes:

"We're dealing with a moving target. The rules are not only different across regions but are also constantly evolving. Keeping up with these changes manually is simply not viable anymore."

The Risks of Manual Processes

Manual processes often leave organisations exposed to compliance risks and reputational damage. Hobell explains the stakes:

"When ESG data is managed manually, the chances of missing a key detail or submitting inaccurate information increase dramatically. This not only jeopardises compliance but can also damage a company's reputation and trust with investors."

Industry expert Vagenas highlights just how fragmented manual processes can be:

"It's certainly not uncommon for the processes surrounding ESG reporting to be ad-hoc. Data will often be manually reviewed and checked, copied and pasted. In some instances, we've even seen people calling in the data over the phone, or pulling it together from emails."

Despite 76% of executives recognising ESG as a central part of their business strategy, many organisations still cling to outdated methods. This hesitation is risky. Excel spreadsheets, for example, lack traceability and auditability, making them inherently unsuitable for meeting modern regulatory standards.

Manual vs. Automated Processes: A Side-by-Side Look

Why Automation Makes Sense

The comparison makes one thing clear: automation addresses the weaknesses of manual processes, offering a more reliable and scalable approach to ESG reporting. For instance, platforms like neoeco's FiSM approach embed ESG factors directly into financial transactions, ensuring audit-grade accuracy while keeping up with evolving standards such as ISSB and CSRD.

To make the most of automation, organisations should prioritise data quality, seamless system integration, clear workflows, and staff training. The benefits extend beyond compliance. Digital technologies have the potential to reduce emissions by 20% in the three largest emitting sectors by 2050, and sustainable investment strategies already surpassed £35.3 trillion in global assets in 2020 - a 15% increase from 2018.

Yet, many organisations remain stuck in manual workflows. As Vagenas points out:

"Many organizations that we work with still rely on Excel spreadsheets, with manual inputs and disparate data sources. Despite the fact that most organisations are committed to digital transformation, there is a reluctance to making technology decisions that move away from legacy processes. This process is very error prone, slow, costly and can expose the businesses to significant risk."

Ultimately, the decision between manual and automated processes determines whether your materiality documentation becomes a strategic tool or merely ticks the compliance box.

Conclusion

Reviewing materiality documentation isn't just about ticking compliance boxes - it lays the groundwork for building stronger businesses and earning stakeholder trust. The five-step process detailed in this guide offers a clear path to identifying, evaluating, and documenting the ESG topics that genuinely influence your organisation and its stakeholders.

Companies that align their sustainability efforts with core business goals often see meaningful financial benefits. In fact, robust materiality assessments have been linked to measurable increases in market value . With 90% of S&P 500 companies now releasing sustainability reports, the real question is no longer whether to adopt these practices, but how to do so in a way that’s both effective and efficient.

Automation plays a crucial role here, ensuring organisations stay audit-ready while minimising compliance risks - risks that only grow as ESG regulations become more demanding. For example, the EU's Corporate Sustainability Reporting Directive (CSRD) mandates that approximately 60,000 companies worldwide disclose both financial and impact materiality annually. This makes having streamlined, repeatable processes more important than ever.

Technology offers a way to turn these challenges into opportunities. Platforms like neoeco’s Financially-integrated Sustainability Management (FiSM) approach demonstrate how ESG factors can be embedded directly into financial systems. By incorporating over 90 ESG impact factors into double-entry accounting principles, organisations can achieve audit-grade precision while staying agile enough to adapt to frameworks like ISSB reporting and CSRD requirements.

"Materiality is more than a reporting exercise - the insights on impacts, risks, and opportunities surfaced through a materiality assessment empower companies to improve performance."

A repeatable review cycle is key to navigating shifting regulations and evolving stakeholder expectations. By continuously reassessing material impacts, risks, and opportunities with the latest data, organisations not only stay compliant but also strengthen corporate governance and improve executive decision-making. This approach ensures sustainability policies and targets remain relevant and effective.

Materiality documentation review isn’t a one-time task - it’s an ongoing process. Organisations that adopt systematic, technology-driven strategies will be better positioned to turn ESG compliance into a strategic advantage, helping them thrive in a rapidly changing environment.

FAQs

What is the difference between single and double materiality, and why is double materiality important for CSRD compliance?

Single materiality zeroes in on how sustainability issues influence a company's financial performance. On the other hand, double materiality broadens the lens, looking at both the financial effects on the company and how the company’s activities impact the environment and society.

This broader perspective is crucial for meeting the requirements of frameworks like the CSRD, as it promotes transparency and accountability. By addressing both internal financial impacts and external consequences, businesses can deliver more thorough and meaningful disclosures. This not only aligns with EU sustainability standards but also lowers the chances of greenwashing. Embracing double materiality allows organisations to meet stakeholder demands while recognising the interconnected relationship between sustainability and business outcomes.

What are the main advantages of automating the materiality documentation review process compared to manual methods?

Automating the review process for materiality documentation brings a host of benefits compared to traditional manual methods. By pulling together data from multiple sources, it creates a more consistent workflow and minimises the chances of human error. This streamlined approach is especially helpful when working under tight deadlines, such as those often required for ESG reporting.

Beyond efficiency, automation offers quicker and more precise data analysis, unlocking valuable insights into sustainability metrics. AI-powered tools also allow organisations to conduct assessments with greater flexibility - whether working remotely or across different time zones - making it easier to stay responsive in a fast-paced environment. These advantages contribute to a more dependable and efficient approach to managing sustainability initiatives.

How can organisations effectively involve stakeholders in materiality assessments to meet both regulatory standards and business objectives?

Engaging Stakeholders in Materiality Assessments

To make materiality assessments meaningful, organisations need to connect with key stakeholder groups, including investors, employees, suppliers, and local communities. Using tools like interviews, surveys, and workshops can help gather a wide range of perspectives. This diversity ensures the most pressing issues are identified and prioritised effectively.

Taking a collaborative approach brings more than just valuable insights. It builds transparency and trust while aligning sustainability efforts with both business objectives and regulatory expectations. Actively involving stakeholders not only strengthens relationships but also ensures ESG initiatives stay relevant and meet the requirements of frameworks like ISSB and CSRD.

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