Transparency in environmental, social, and governance (ESG) reporting has emerged as a critical objective, with materiality assessments playing a pivotal role in determining compliance outcomes. This observation came to the fore during Compliance Week's virtual ESG Summit, where experts highlighted the growing significance of ESG reporting.
Hilary Wandall, Chief Ethics and Compliance Officer at Dun & Bradstreet, participated in a session focused on materiality assessments. She was joined by Gwen Miller-Dannelongue, ESG and Impact Reporting Manager at satellite imagery provider Planet Labs, who explained the initial steps in a materiality assessment process.
Miller-Dannelongue outlined the process, saying, "You'll start by pulling a larger universe of topics that you think may be material to your organization. Typically, that's 20 to 30 topics you have found via research of your peers."
The next phase involves stakeholder engagement, which includes interviews and surveys with various stakeholders. Miller-Dannelongue emphasized that stakeholders could encompass employees, customers, non-governmental organizations, communities, investors, and trade associations, although the specific list may vary depending on the organization and industry.
Viewing ESG metrics through the lens of materiality assessments can help compliance teams in managing their responsibilities for reporting and framing key performance indicators, according to Wandall. She added, "One of the things that compliance teams are finding themselves more and more responsible for is timely reporting on ESG metrics. Both in terms of the internal tracking as well as what goes out into the corporate social responsibility (CSR) report."
Transparency has become an increasingly important goal for ESG and CSR efforts, driven by regulatory compliance and ethics regimes, such as financial reporting and data broker registration. Additionally, new laws addressing modern slavery in the European Union, United Kingdom, and United States have further emphasized the need for transparency. Wandall noted, "It’s been driven by other regulatory compliance and ethics regimes, such as financial reporting and data broker registration," while highlighting different regulatory proposals at the federal and state level.
Wandall also discussed the importance of collaboration between ESG teams, compliance teams, legal teams, and other stakeholders to ensure consistent and systematic ESG reporting. She added, "So, all of this comes together in thinking about how do ESG teams, compliance teams, legal teams, and others in the organization responsible for CSR reporting … work together to make sure that this is being done in a consistent and systematic way."
Miller-Dannelongue introduced the concept of double materiality, which requires companies to consider not only how sustainability issues affect the business but also their impact on society and the environment. This concept is now being regulated by the EU Corporate Sustainability Reporting Directive (CSRD) and its European sustainability reporting standards.
Double materiality assessments differ in how stakeholders are engaged. Instead of focusing on what is important to stakeholders, these assessments involve understanding the impacts that stakeholders believe the company has on people and the planet. Miller-Dannelongue noted, "Instead of interviewing your stakeholders to find out what’s most important to them, you would interview them to find out what impacts they think your company has that are most important on people and the planet."
Miller-Dannelongue further explained how mature ESG programs will eventually have their sustainability reports assured by an independent third party. This assurance process entails a higher level of scrutiny, with a particular emphasis on value chain due diligence, which considers the impacts of a company throughout its value chain, including the supply chain and product-use phase.
She added, "There’ll be a greater focus on that because companies have impacts throughout their entire value chain," while emphasizing the significance of impacts in specific frameworks, such as severity and likelihood. "Severity is based on the scale, scope, and whether you can remediate the impact," she concluded. "Scale is how grave or serious the impact is. Scope is how many people are impacted or how wide the impact is."
In an evolving landscape of ESG reporting and regulation, transparency, thorough materiality assessments, and stakeholder engagement are becoming indispensable tools for organizations seeking to navigate the complexities of sustainability and compliance.
By fLEXI tEAM