Materiality matters: focus on the essential in your ESG development
Selja Ryöppy
As the realm of corporate responsibility expands into new territories, businesses may find themselves daunted. You cannot eat an elephant in one go, but where should you even start? An encouraging fact is that businesses don’t have to do it all. Prioritizing the right aspects can take you a long way, and there are task lists and resources available to assist in practical implementation. Here are some tips for businesses getting to grips with corporate responsibility.
Growing list of sustainability topics puts pressure on businesses of all sizes
Anyone reading this blog will likely be familiar with the concept of corporate responsibility and ESG at least at a high level, as environmental, social, and governance issues are increasingly prominent on the agendas of investors, regulators, consumers, and employees alike. Understanding relevant risks and opportunities, whether ESG-related or not, can enhance a company’s long-term growth and internationalization prospects.
However, delving into the ESG realm can seem overwhelming. ESG does not form a static list of disparate topics but a multidimensional and ever-evolving fabric, sometimes frustratingly interwoven, that businesses are expected to comprehend increasingly well. Among the familiar topics are issues like employee compensation or anti-corruption, which demand staying abreast of changing regulations and practices. Additionally, ESG continues to expand to encompass new areas such as the more recent additions of inclusivity and biodiversity.
Smaller companies, in particular, find it nearly impossible to address all the subtopics of the ESG ‘list’ simultaneously. Moreover, resource constraints familiar to growing businesses necessitate making choices among these topics.
First, identify essential issues
To comprehend the ESG framework sensibly, companies need to understand the topics pertinent to their specific industry or scale. Even the smallest startups and growth companies should pay attention to fundamentals such as employee well-being and developmental opportunities, besides fulfilling legal documentation requirements. It is also crucial to assess the company’s external impacts and understand how it affects the surrounding society and environment, and how these, in turn, shape the company. The company’s role and position in the value chain, along with related needs and requirements, must also be taken into account.
The purpose of this assessment process is to determine which aspects of the ESG framework are (and aren’t!) relevant to the company. When resources permit, seeking opinions from other stakeholders is useful. However, in a small company, the evaluation can be done without external stakeholders. Nevertheless, the opinions and perspectives of the staff are crucial.
Once priorities are clear, leverage proven tips and assistance
The process described above is known as materiality analysis. It results in a list of topics that are vital to consider, especially in strategy development and goal setting. Prioritization should also be done with a roadmap-thinking, allowing a gradual approach to achieving desired results over, for example, one strategic cycle.
Materiality analysis is the first step in getting practical work underway. Subsequently, the company should allocate resources to develop the selected topics, which at the very least means earmarking staff hours for these projects. Depending on the topic, there might also be a need for a separate budget or external experts.
The work typically begins in small steps, such as documenting existing processes, analysing potential gaps, or training employees. There are ready-made task lists available online, and some investors and consulting firms offer their own resources. Tesi, for instance, has published a comprehensive and publicly accessible handbook that covers materiality analysis, the intersections of strategy and responsibility, and practical assistance in creating processes for various ESG topics.
While the journey toward sustainability might seem daunting initially, breaking it down into manageable pieces is key. Developing responsibility within businesses requires long-term effort, much like any other development work – so best of luck with the start!
Tesi’s ESG handbook helps companies incorporate sustainability into their strategy, identify focus areas, and establish clear processes for measurement and improvement. The handbook also provides tips for startups and growth companies on developing 17 different ESG topics. These tips can also be valuable for larger enterprises seeking insights into best practices.
In addition to the handbook, Tesi has released a matrix tool focusing on S and G issues, as well as supplementary materials and a greenhouse gas emissions calculator related to GHG emission themes. You can find all of Tesi’s sustainability materials here.
Tesi (officially Finnish Industry Investment Ltd) is a state-owned, market-driven investment company that invests in venture capital and private equity funds and directly in Finnish startups and growth companies.
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