Outsourcing Materiality Assessment – Key Considerations

14th June 2023

winter forest

Sustainability used to be a niche part of the consulting world, with a mix of bearded believers and technical experts dedicating their careers to the thankless task of turning businesses, governments, and institutions on to the environmental and social problems hardwired into late-stage capitalism. Now, we find that almost every type of service and consulting firm has built a ‘sustainability’ offer to tap into the market that is estimated to grow to $16bn by 2027.

Mariana Mazzucato’s latest book “The Big Con” challenges the role of the growing army of consultants, arguing that they weaken businesses, infantilise governments and warp economies. I’m sure she can’t possibly mean my colleagues at Anthesis, but it’s true that when you bring in consultants to take away the pain, you risk seeing them leave with all the value too.

Unsurprisingly, we think it needn’t be that way. There are certainly good arguments for going it alone, and if it’s simply a matter of capacity, consultants can provide that much needed support. However external advisers can also bring a wealth of value in terms of wider perspectives, expertise, and knowledge you may not find internally.

So, what are the value-adds and pitfalls of working with consultants on sustainability projects? Let’s take the example of double materiality, requests which dominate our inbox at the moment. If you’re thinking of buying such support, what should you be looking out for?

1. Choosing the wrong consultants

Sounds obvious, but the changing focus of double materiality means you may need a different kind of advisor. Getting a boutique audit consultancy is fine if your main need is process support; though even then it’s worth checking if they really understand what’s coming from CSRD, the SEC, IFRS et al. But if you want the deep subject matter expertise ESRS calls for in evaluating impact and risk topics, you also want consultants with the right knowledge across a wide range of topics. Look at your draft material topic list and ask yourself, ‘Does my consultant know my sector and/or sustainability regulation well enough to make sensible recommendations?’.

2. Handing over too much responsibility

Tempting as it may be to get the consultants to do all the work, remember, ultimately it’s your assessment, and in time it’s your organisation that will be judged on compliance. By owning the process and using the consultant to support your internal engagement strategy, your strategic response to the outcomes of the materiality assessment will be all the richer than having a finalised materiality deck that sits in someone’s inbox, gathering dust.

3. Short-term vs long-term relationships

Consultants bring experience and expertise to the materiality process and can satisfy a resource gap in your teams. But starting any new relationship can be time-consuming on both sides because consultants can’t know your business as well as you. Investing in a long-term relationship, a consultancy partner can iron out the kinks in the process and develop a deeper understanding of your internal landscape. Working with a consultant who not only understands materiality but also understands how your business works, can help you navigate the internal silos and lead to action-orientated outputs rather than just a tick-box exercise.

4. Relying too much on traditional methods

To make money out of materiality projects, consultants have tried to standardise the process, and some elements have become entrenched. A fistful of benchmarks and a dozen or so stakeholder interviews culminating in a matrix are the comfort zone, but the results of these processes can be a bit underwhelming, particularly if it’s not your first rodeo. Now that ESRS is asking you to rely less on stakeholder opinion, and challenge the evidence base on offer – can your consultants provide some real data or convincing expertise on impacts, risks, customer preferences or investor concerns?

5. Static outputs that don’t engage, and quickly date

A new matrix in the report is great, and will probably tick the compliance box, but if that’s the main output, was it really worth it? A great consultant arms you with the insights and tools to help you navigate your internal decision-makers and works with you to drive the change needed to achieve your sustainability commitments. Can your consultants help you bring more colleagues up to speed by creating and visualising a rich evidence base that you can share and build on?

6. CSRD materiality assessment: Assuming it’s just a compliance project

In some ways, it’s great that the reporting component of materiality is getting more regulated and standardised. We need better, comparable information on sustainability impacts, risks, and opportunities. But as it’s going to be complex and demanding to comply, you could end up focusing all your efforts on keeping the auditors happy. The risk is you miss out on the greater value of materiality, in providing insights for strategy and a functional compass for companies wanting to navigate the increasingly choppy waters of the sustainability transition. Helping you on the path to compliance is the price of entry, but your consultants should be thinking about that greater value first and foremost and how the investment you’re making in them will take you closer to achieving your purpose.

We’ve developed a free guide to help you meet the emerging regulatory requirements on double materiality, and make sure you use the process to make your organisation more sustainable. If you are one of the companies that will have to complete a double materiality assessment to meet the mandatory CSRD requirements, we have a free webinar to help you get started.

If you’d like to learn more about how Anthesis tackles the pitfalls of working with consultants, and how we can help you tackle double materiality with a focus on real value, contact us.

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