Materiality Assessment: A Critical First Step in ESG Due Diligence

Given the complex landscape of global, regional, and country-specific sustainability reporting frameworks and standards, and the nascency of a universally accepted approach, it can be a formidable task to outline a thorough yet practical scope for an ESG due diligence exercise. Materiality, a key concept of sustainability reporting, underpins the multiple reporting frameworks and is often shaped by investors’ views of financial relevance. A materiality assessment is a critical first step in an ESG due diligence exercise to identify and prioritize ESG issues that are most critical to a given company and its stakeholders. Additionally, the exercise provides guidance on the pertinent data for companies to disclose and investors to assess.