Materiality Assessments: A Deep Dive into Strategic ESG Prioritization

Materiality assessments have become an indispensable tool for companies navigating the evolving ESG landscape. Amid growing pressure from regulators, investors, and internal stakeholders, these assessments help organizations determine which environmental, social, and governance issues are most significant to long-term value creation. Yet despite their ubiquity in sustainability reports, many materiality exercises fall short. Too often, they are treated as one-time compliance checkboxes, rather than as strategic instruments for decision-making, risk management, and value capture.

With regulations tightening globally, from the EU’s CSRD to the SEC’s climate disclosure rules, and frameworks like ISSB setting global baselines, the stakes are rising. It is no longer acceptable to simply map issues on a 2x2 matrix based on vague stakeholder interviews and internal opinions.

The Strategic Imperative Behind Materiality

At its core, a materiality assessment is about prioritization. The challenge is to identify which ESG topics matter most to your business and your stakeholders, and to do so credibly. But "importance" is not static. It is shaped by geopolitical shifts, supply chain disruptions, societal expectations, and climate risks. A truly strategic materiality process must be dynamic, data-informed, and decision-oriented.

In our experience, we’ve found that materiality assessments often fail when they rely too heavily on stakeholder perception alone, without integrating business model analysis, financial impact forecasting, or scenario-based risk evaluation.

For instance, a major Australian mining firm we advised discovered that Indigenous rights and land use, while long considered a “social” concern, had emerged as a material financial risk following legal decisions affecting land access. Without re-evaluating its matrix using more rigorous lenses, the firm might have underprioritized an issue now affecting permitting and investor confidence.

Evolving Standards: Single vs. Double Materiality

A major shift in recent years has been the move from “single” to “double materiality.” Single materiality asks what ESG issues are financially material to the company. Double materiality adds a second dimension: how the company’s operations impact people and planet.

This is no longer an academic distinction. The EU’s CSRD, now in effect, requires companies to report against double materiality under the European Sustainability Reporting Standards (ESRS). Failure to assess both dimensions can result in non-compliance and reputational damage. Similarly, the ISSB’s IFRS S1 and S2 standards, while focused on investor-relevant information, emphasize financial relevance through climate and sustainability disclosures with integrated governance, risk, and strategy alignment.

Firms operating across jurisdictions must reconcile these differing interpretations. This cannot be done through templated approaches or third-party platforms alone. Strategic judgment is required, particularly when materiality decisions affect capital allocation, innovation roadmaps, or executive KPIs.

Depth Over Optics

We continue to see companies publish “materiality matrices” that are high on design but low on substance. Polished visuals mask shallow methodologies. This creates risk.

A 2024 study by the World Benchmarking Alliance found that fewer than 20 percent of companies reviewed could credibly explain their materiality process or tie it to board-level decisions. Regulators are paying attention. In the U.S., the SEC’s final climate disclosure rules, while somewhat watered down from their original form, still demand defensible processes and documentation for materiality determinations.

Materiality should not be seen as a static list or communications tool. It must be the engine behind ESG strategy. Companies that use it this way are not just avoiding risk—they are gaining strategic clarity. They know where to invest, where to divest, and which stakeholders to prioritize.

Connecting Materiality to Strategy

Materiality must inform not just what you disclose, but what you do. This means integrating assessment results into:

• Capital planning and R&D priorities

• Executive compensation schemes

• Supply chain due diligence efforts

• Policy engagement and public commitments

In our consulting work, we often guide clients through translating raw insights into clear strategic decisions. For example, a consumer goods client recalibrated its circular economy investments after its updated materiality assessment showed a growing investor and consumer emphasis on packaging waste. Rather than launching new pilots in every market, the company focused on scalable initiatives in regions with regulatory tailwinds and material cost advantages.

Beyond the Matrix: A Living Process, Not a Static Output

Materiality assessments must evolve from one-time diagnostics into living processes that are regularly revisited and updated. Business environments are not static. Neither are stakeholder expectations, regulatory contexts, or physical climate risks.

The Task Force on Climate-related Financial Disclosures (TCFD), which influenced the ISSB’s S2 climate disclosure standard, emphasizes scenario analysis and iterative risk review. Similarly, Canada’s new Sustainability Disclosure Standards (CSSB) and Singapore’s enhanced ESG guidelines call for ongoing engagement and reassessment, not annual exercises locked in PDF reports.

In practice, this means establishing clear governance structures and ownership of the materiality process. Material topics should be tracked with key performance indicators (KPIs) and integrated into enterprise risk management (ERM) systems. The goal is not to simply produce an output, but to embed ESG risks and opportunities into how decisions are made at the C-suite and board levels.

In our experience, we’ve found that companies that institutionalize ESG materiality across functions—from strategy to procurement—achieve better alignment, fewer internal contradictions, and stronger investor credibility.

Common Pitfalls and How to Avoid Them

Several patterns continue to hinder the effectiveness of materiality assessments. A few examples we frequently encounter:

• Overreliance on third-party surveys: While stakeholder input is essential, outsourcing all stakeholder engagement to an external consultant without context or follow-up weakens the signal.

• Failure to disaggregate stakeholder groups: Not all stakeholders are equal, and not all care about the same issues. Segmenting investors, regulators, employees, Indigenous communities, and customers yields sharper insights.

• Static thresholds for materiality: Using outdated risk thresholds or ignoring the velocity of reputational risk can obscure rising priorities.

To counter these pitfalls, companies should adopt a multi-layered, evidence-based methodology that blends qualitative and quantitative inputs. This includes stakeholder engagement, peer benchmarking, legal exposure analysis, and scenario testing. The best materiality processes are auditable, explainable, and strategically relevant.

Why Now: Regulatory Acceleration and Competitive Advantage

Materiality assessments have moved from voluntary best practice to strategic necessity. The EU’s CSRD requires some 50,000 companies to conduct double materiality assessments. In the U.S., the SEC’s climate rule, while narrower, still compels registrants to assess the material impact of climate-related risks on their financial performance.

Globally, jurisdictions such as Australia, the UK, Japan, and Canada are aligning with ISSB or developing their own parallel frameworks. Companies operating across markets must navigate this patchwork carefully.

Yet beyond compliance, leading firms are using materiality assessments to drive competitive differentiation. By anticipating shifts in what matters most—and acting before competitors—they position themselves as credible, future-fit leaders. Those who wait risk falling into the “greenhushing” trap, where silence or vague commitments become red flags to investors and regulators alike.

The Strategic Payoff

Materiality done well enables companies to:

• Prioritize ESG investments with clarity

• Navigate regulatory change with confidence

• Communicate with stakeholders more effectively

• Strengthen risk management and foresight

• Build internal alignment and cross-functional ownership

But achieving this requires more than templated tools or checkbox exercises. It demands experience, judgment, and context. Each industry, geography, and value chain has its own signals to interpret. There is no one-size-fits-all.

Our Role: Partnering for Precision and Impact

At Gasilov Group, we support clients in transforming materiality into strategic action. We bring cross-sector expertise, rigorous methodologies, and a nuanced understanding of global ESG frameworks. From designing stakeholder engagement strategies to integrating results into your governance and reporting systems, we help you move beyond compliance toward competitive advantage.

If you are rethinking your materiality process—or wondering if your current matrix is still fit for purpose—connect with us. We can help you ask better questions, uncover blind spots, and align ESG insights with core strategy.

Written by: Gasilov Group Editorial Team

Reviewed by: Arif Gasilov, Partner – Sustainability Strategy​​

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Frequently Asked Questions (FAQ): Strategic Materiality in ESG

1. What is the difference between single and double materiality in ESG?

Single materiality focuses on how ESG issues affect a company’s financial performance. Double materiality includes both financial impacts and how the company’s activities affect people and the environment. The EU’s CSRD requires double materiality assessments, making it critical for companies operating in or selling to the European market.

2. How often should a materiality assessment be updated?

Materiality assessments should be revisited at least every two to three years, or sooner if there are significant changes in regulation, stakeholder expectations, or business strategy. Companies operating in dynamic sectors or multiple jurisdictions may need to refresh annually.

3. What are common mistakes companies make in ESG materiality assessments?

Frequent issues include relying solely on third-party tools without internal ownership, failing to disaggregate stakeholder voices, and not linking findings to strategy or KPIs. Shallow processes can lead to misprioritized investments and regulatory risk.

4. Are materiality assessments mandatory for ESG reporting?

Under the EU CSRD and ISSB-aligned standards, yes. In the U.S., while the SEC climate rule does not use the term "materiality assessment," it requires companies to evaluate the material impacts of climate-related risks. Increasingly, regulators expect a documented, defensible process.

5. How can materiality assessments drive business value beyond compliance?

By identifying which ESG topics are financially and reputationally critical, materiality assessments guide investment decisions, enhance risk management, and support more credible reporting. Companies that align ESG materiality with strategic priorities tend to see stronger investor confidence and long-term resilience.