Understanding your company’s impact on the environment and society is the right thing to do. But doing good becomes a higher priority when regulatory mandates demand you take action.
Many companies have invested considerable time and resources developing their environmental, social, and governance (ESG) strategies. To keep up with early regulatory mandates, they built teams, generated reports, and made plans. But as the science of climate change advances, the financial risk to the global economy becomes apparent, and pressure from investors and other stakeholders grows, additional regulations are pressuring organizations to do more.
In the US, the Task Force on Climate Financial Disclosures (TCFD) will soon require companies to report on ESG risks to the business and how well they are managing them. Understanding the sustainability issues that are material to a firm’s financial performance – what’s known as “single materiality” – is critical to meeting the disclosures due beginning January 2025.
The challenges are even greater in the European Union, where the Corporate Sustainability Reporting Directive (CSRD) expects companies to also assess their impact on the planet, society, and the economy. This outward-facing “double materiality” requirement yields a more complete picture of companies’ sustainability performance, but addressing it can be complex and costly.
Conducting a Materiality Assessment with ESG Data
When conducting both single and double materiality assessments, companies begin by pinpointing the ESG issues that could materially impact the organization. After identifying those issues, leaders seek input from internal and external stakeholders, including key shareholders, suppliers and employees. Through interviews, surveys and focus groups, stakeholders provide guidance on materially important factors and actions the organization should take to prepare for and address ESG issues.
The data captured as part of a materiality assessment is critical to companies that must demonstrate compliance. This data provides evidence on methodologies and processes used to analyze what is material to the company. It also includes information on specific key performance indicators, which can differ by industry vertical or Standard Industry Classification Code. Companies also must have the appropriate controls to show the source of their materiality data.
Integrating ESG Data for Comprehensive Materiality Assessments
Leading companies are going further in their ESG efforts by working to establish net-zero targets. Yet the vast majority of an organization’s carbon emissions emanate from the supply chain – and often the related ESG data is outside of their control. To collect this Scope 3 emissions data, companies must work with upstream and downstream suppliers. They also need to assess how products are used throughout their lifecycle – a challenge for even simple goods and services.
Advanced data management platforms include data models that help companies filter supply chain partners by their carbon emissions. They also can identify vendors that produce goods using forced labor or child labor or otherwise violate social or human rights mandates, such as the European Union’s proposed Corporate Sustainability Due Diligence Directive (CSDDD). The most sophisticated offerings can even incorporate data from ESG rating agencies, helping companies easily pinpoint high-risk suppliers.
Being able to assess, document, and trace various ESG and sustainability issues and risk is a huge challenge – but it’s also a business benefit. The right data management platform can help organizations understand which regulations apply to their operations, how they can best mitigate risk, and which actions they must take to address critical sustainability issues. As the number of ESG mandates multiples and data challenges become more complex, choosing the right tools to support single and double materiality assessments can be the first step toward realizing new value from regulatory compliance.
Dig deeper
Watch this webcast to see how one leading retailer uses a data management platform to support sustainability and derive value from its ESG program. See how one leading bank uses its data management platform to improve regulatory compliance and demonstrate its commitment to responsible, ethical business practices.
