top of page
Search

Materiality Decoded: Reporting Requirements Turned Strategic Assets

Last week we took an introductory call with a potential partner to learn about where their climate tech is at and how we can help. They believed they needed the Climate Tech Propel team to produce a sustainability report. However, we estimate that in their stage of growth, they are years away from needing full blown ESG reporting. What became clear in the conversation is something we see regularly: despite their breakthrough technology and potential for global scale up, they do not really understand their value proposition as a climate tech. Therefore, we recommended to ditch the reporting (for now), and instead to perform a materiality assessment to hone in on their strategic competitive advantage. Read on to understand why.


Materiality assessments offer valuable insights into a company’s sustainability value proposition that can translate into stronger communications, sales pitches, and fundraising rounds. We’ll lay it out in the conventional way (be warned, it’s dry), and then we’ll cut to the chase and answer to why it matters and how a climate tech can extract the most meaning from the process. 


Materiality assessments refer to the process of compiling information about impacts, risks and opportunities across environmental, social, and governance matters from the materiality perspective, the financial materiality perspective, or both. The specific definition of materiality does vary slightly across different frameworks, but the overarching goal is to identify issues that matter most to a company and its stakeholders, and assess them, both up and down the value chain. 


In practice, arriving at these strategic benefits requires a double materiality assessment. Incoming: more jargon. The ‘double’ refers to two types of materiality, impact and financial. Impact material is the ‘inside out’ approach, that determines the actual or potential positive or negative impacts an organization has on people or the environment in the short, medium, and long term. Financial material, or the ‘outside in’ approach, identifies the generation, or potential generation, of risks or opportunities that sustainability issues could have on the organization’s financial reality (i.e. financial position, financial performance, cash flows, access to finance, or cost of capital over short, medium, or long term). Especially for climate tech companies, both impact and financial materials are interrelated at the very core, and can therefore provide key insights into the business and its offerings.



Fig. 1: Example materiality matrix for climate tech company X

Now let’s uncover how materiality assessments can become strategic assets for businesses. Materiality is a dynamic, iterative process. Business environment, stakeholder expectations, and ESG issues are constantly changing, so materiality must be reassessed periodically. With that in mind, here’s an overview:


Defining Parameters, Engaging with Stakeholders 

  • Listing key groups of stakeholders

  • Identifying parameters for the assessment 

  • Analysis of business plan, strategy, financial statements

  • Mapping of activities, products/services, geographic locations, and business relationships 


Identifying Issues and Criteria to Assess 

  • Considering both internal and external factors, creating a comprehensive list of potential ESG issues based on industry standards, regulations, and stakeholder input

  • Establishing criteria for evaluating the significance of each identified issue


Assessment 

  • Using the established criteria, scoring of each issue

  • Prioritizing issues based on scores, in which higher ones indicate greater materiality


Validation and Review

  • Internal and/or external review of results for validation purposes

  • Seeking feedback from stakeholders 


Business Integration 

  • Integrating the results into sustainability and corporate reports

  • Read through the next section to see what else is possible 


A company undergoing materiality assessment gains, among other benefits, robust data systems detailing the ins and outs of their business for disclosure requirements. Not completing materiality assessments presents legal, financial, and reputational risks, but leaving materiality at reporting is like eating a red velvet cupcake and throwing out the cream cheese frosting – you miss out! 


Materiality assessments give way to a deep understanding of the significance of a company’s impacts on the environment, people, and economy, as well as the repercussions of sustainability issues on its own operations (See Fig. 1 for an example of a commonly used visual representation of material issues, a materiality matrix). With these tools, a company can identify and prioritize sustainability goals, and set KPIs accordingly. But for climate techs, material topics should be infused into different areas of business to drive communications, sales, and fundraising. Quantitative analysis gives way to qualitative storytelling, wherein impact translates to SDG’s, and can build out a narrative framework for a climate tech as well. A materiality assessment serves as a strong starting point for understanding and communicating your climate tech’s value proposition. 


The move from materiality to meaning requires strategic thinking, and that’s where Climate Tech Propel can help. Our expertise and advisory oversight allows you to make sense of the data, and use it to grow your competitive advantage. A company can spend many months and thousands of dollars developing an end to end materiality assessment and formal report. And sometimes this is where a company should go. But for most, an evidence based deep dive can form a knowledge base sufficient for meeting strategic needs. So, are you ready to unlock the full potential of your sustainability strategy? Connect with us to propel your organization’s impact.

Comments


bottom of page