Determining material topics: 4-step process (GRI-3 material topics standard)
Any organisation reporting in accordance with the GRI Standards, is required to determine its material topics and report how it manages each topic. There are four key steps (GRI 3) that any organisation should follow in determining these material topics, which are widely regarded as best practice for assessing and prioritising significant sustainability impacts on the economy, society and the environment. This is because information users and, most importantly, stakeholders, are provided with a complete set of information concerning the organisation’s identity (activities, business relationships and more), its actual and potential negative or positive impacts and, among these, the most significant impacts prioritised and reported on.
The approach for each step may vary according to the organisation’s specific circumstances, such as its business model, sector, geographic location, and the nature of its impacts.
STEP 1: Understand the organisation’s context
This is one of the most important steps and has to be conducted properly. It is about collecting all relevant information regarding the organisation. It is highly recommended that this information is created in a working document to be signed off by internal senior decision makers.
The information can include but is not limited to the following:
- the organisation’s activities, including its purpose, business model, types of activities, products and services, sectors in which it is active, and number of employees
- business relationships, providing information on the organisation’s relationships with business partners and the types of activities carried out by the latter
- the sustainability context in which these activities and business relationships occur, considering sustainability challenges (e.g. human rights) at local and global levels, along with compliance with laws and regulations and/or authoritative intergovernmental instruments (also visit GRI-1 to understand the GRI principle of sustainability context and how this can be applied through the different tests (presented as bullet points).
Understanding the sustainability context provides the organization with critical information to determine and report on its material topics (see GRI 3: Material Topics 2021). The GRI Sector Standards describe the sectors’ context and can help the organization understand its sustainability context. - stakeholders, i.e. individuals and groups whose interests are affected or could be affected by the organisation’s activities, with whom the organisation engages to identify impacts
STEP 2: Identify actual and potential impacts
In this step, the organisation identifies its actual and potential negative or positive impacts on the economy, environment and people, including impacts on their human rights, across activities and business relationships. It is important to note that:
Negative impacts:
- identifying actual and potential negative impacts is the first step of due diligence
- the organisation should consider actual and potential impacts it causes or contributes to or impacts directly linked to its operations
Positive impacts:
- the organisation should assess how it contributes or could contribute to sustainable development through, for example, its products, services, employment practices or tax payments
- the organisation should consider any negative impacts that could result from activities that aim for a positive contribution to sustainable development
STEP 3: Assess the significance of the impacts
In this step, the organisation assesses the significance of its identified impacts so as to prioritise them and take action on the most important impacts.
In assessing the significance of negative impacts, the organisation should consider:
- the severity of an actual or potential negative impact, which is determined by its scale (how grave it is), scope (how widespread it is) and immediate character (how hard it is to counteract or make good the resulting harm)
- the likelihood, i.e. the chance of the impact happening
- potential negative human rights impacts, in which the severity of the impact takes precedence over its likelihood
In assessing the significance of positive impacts, the organisation should consider:
- the scale and scope of the impact, when determining the significance of an actual positive impact
- the likelihood of the impact, in addition to its scale and scope, when determining the significance of a potential positive impact
STEP 4: Prioritise the most significant impacts for reporting
In this step, to determine its material topics for reporting and taking action on, the organisation prioritises its impacts, based on their significance. The organisation should:
- set a threshold to determine which topics are material, arranging impacts from most to least significant and defining a threshold to determine which of the impacts it will focus its reporting on
- group the impacts into topics, to facilitate prioritisation
- test its material topics with potential information users and experts, as well as against the topics in the applicable GRI Sector Standards
- have the material topics approved by the organisation’s highest governance body or a senior executive
- determine what to report for each material topic
References:
https://www.globalreporting.org/standards/
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