Conducting your materiality assessment

Modified on Thu, 16 Apr at 10:53 AM

This article explains how to conduct your materiality assessment as part of B Lab Standards V2.

A materiality assessment isn't a compliance checkbox, it's the foundation of your impact strategy. PSG2.3 requires companies to identify what actually matters, by listening to the people and ecosystems their business touches. Done well, it surfaces impacts you didn't know you had and opens dialogue with stakeholders who are rarely heard.

A materiality assessment is a process that helps identify the company's most significant economic, social, and environmental topics that warrant attention and action.

This article focuses on PSG2.3 The company conducts regular materiality assessment to assess and identify material topics. This requirement builds on a number of other international frameworks to foster greater interoperability. This includes the Global Reporting Initiative (GRI) 3 Material Topics and the Corporate Sustainability Reporting Directive (CSRD) with the underlying European Sustainability Reporting Standards (ESRS).

The company may combine the PSG2.3 assessment with the assessment of actual and potential negative environmental impacts (ESC1.7) and the Human Rights saliency assessment (HR2.1), as long as the respective compliance criteria of those sub-requirements are also fulfilled.

How to conduct your materiality assessment: Step-by-step

Start with your stakeholder map

Before you design any engagement process, map who is affected by your business across your full value chain, not just your immediate operations. The Standard requires engagement across six stakeholder groups or their representatives, including community and environment. In this step you may create an initial high-level overview of the business activities of your organization.

Identify actual and potential impacts

Next, identify your actual and potential impacts on the economy, environment, and people, including impacts on their human rights, across your company’s operations and value chain.

PSG2.3 prohibits a purely financial materiality lens. The company needs to apply double or impact materiality and answer one of the key questions: “how does our business affect people and the planet?”.

For B Lab, the company needs to engage, at minimum, the following stakeholders or their representatives to gather input on material issues:

Workers of the company or its subsidiaries
Suppliers
Customers
Investors
The community where offices or facilities of the company, its subsidiaries, its suppliers, or its investments are located
The local or global environment

The environment has no voice, so you'll need to speak on its behalf using scientific data or expert advice. This isn't optional, it's part of the stakeholder picture.

Engaging every individual within a stakeholder category is not required. The scope and method of engagement should reflect your specific business context. What matters is that each stakeholder category is meaningfully represented, ensuring the input gathered is relevant and sufficient for a credible materiality assessment.

In addition, you may gather supporting information from internal and external sources such as:

third-party assessments
financial audits
impact accounting
occupational health and safety inspections
information from grievance procedures
information from external sources, such as scientific research or news organizations.

Assess significance with severity first

To determine your material topics, impacts must be prioritized based on their significance. Prioritise negative impacts separately from positive ones, and define a clear threshold for what counts as material.

Negative impacts can be categorized into actual or potential negative impacts. Actual negative impacts must be prioritized based on severity, while potential negative impacts must be prioritized based on both severity and likelihood. Severity should outweigh likelihood, so that highly-severe impacts, even if they are unlikely, are still prioritized.

Severity is assessed across three dimensions:

Scale — how serious would the harm be?
Scope — how many people would be affected?
Ease of remediation — how reversible is the harm? Unpaid wages can be corrected; an occupational disease cannot.

Severity ratings:

High — major, irreparable, long-lasting damage to people or the environment
Medium — significant and lasting damage
Low — minor, reparable, temporary damage

Likelihood considers how frequently the impact occurs:

High — expected to occur continuously
Medium — occurs regularly (several times per month to per year)
Low — occurs only occasionally (e.g. during a specific project phase)

Example: A supplier using forced labour may be unlikely, but the severity (irreversible harm to human rights, affecting many people) means it must rank higher than a frequent but minor issue like occasional late payment to a small vendor.

Ensure governance oversight and public disclosure

Your highest governing body must have oversight of the process and review the results. Members of the highest governing body should understand the methodology, know who was engaged, and be able to interpret the outcomes.

The final output, whether a materiality matrix or a ranked list of topics, must be publicly available, alongside a summary of how stakeholders were engaged.

Review regularly

The standard requires a full assessment every 36 months and an interim review in between. The interim doesn't need to replicate the full process. It could be an annual supplier survey, tracking grievance procedure trends, or a structured customer feedback review. Document what you learn and how it updates your material topics.

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