Module 10: Applying Materiality Assessment in Strategic Management reporting—it also helps companies make better decisions.

also helps companies make better decisions. It shows what environmental or social issues
really matter to both the company and the people it affects, so leaders can make smarter plans and align
Learning Outcomes
their business strategy with sustainability.
By the end of this lesson, students will be able to:
The Coating of the Materiality Lens
1. Identify the impacts of material assessment both financially and non-financially.
Think of a materiality assessment like a special lens companies use to figure out which environmental and
Introduction social issues really matter. But here’s the thing: this lens isn’t the same for everyone—it gets a different
“coating” depending on which reporting framework the company uses. That coating changes how the
Modern business success is increasingly measured not just by financial outcomes but also by company sees the world and itself.
environmental, social, and ethical performance. Investors and stakeholders are paying more attention to
non-financial information, viewing strong sustainability practices as indicators of long-term stability and Two well-known frameworks show how this works:
profitability. As a result, companies are being encouraged—or even legally required, such as under the
EU’s Non-Financial Reporting Directive—to include sustainability in their strategic planning. 1. SASB (Sustainability Accounting Standards Board)
a. Uses outside-in materiality: This means it looks at how things happening in the world
A key tool in this effort is materiality assessment, which helps organizations identify the (like climate change or regulations) might affect the company’s profits, risks, or value.
environmental and social issues that matter most to stakeholders and could impact business performance. 2. GRI (Global Reporting Initiative)
This process supports risk management and strategic planning. However, the effectiveness of a materiality a. Uses inside-out materiality: This means it focuses on how the company’s actions affect
assessment depends on the framework used, as different standards define materiality in different ways. people and the planet—like how much pollution it causes or how it treats workers.

This chapter examines how materiality assessments function as strategic tools, focusing on two These different approaches exist for two big reasons:
contrasting frameworks: the Sustainability Accounting Standards Board (SASB) and the Global
Reporting Initiative (GRI). Understanding their differences can help businesses more effectively integrate 1. Explicit differences: The two frameworks were created by different people for different purposes.
sustainability into their strategies amidst evolving global expectations. That’s why they look at different kinds of impacts and use different methods.
2. Implicit differences: These are deeper. They’re based on different beliefs about what a business is
Non-Financial Reporting and Materiality Assessment for:
a. Some people think a business should mainly serve its shareholders (the people who invest
Non-financial reporting is how companies share information about their impact on things like in it).
the environment, society, and the economy—not just about money and profits. This kind of reporting b. Others believe it should serve a wider group—like employees, customers, communities,
started back in the 1960s and 70s, when some businesses began talking about their role in the community. and the environment (the stakeholder view).
Over time, it became more detailed and organized, often in special sustainability reports. Nowadays, c. This shareholder vs. stakeholder debate has shaped how materiality tools are made and
many companies are combining this with financial info into one big report, called an integrated report. used. And it also affects how companies think about their responsibilities. Sometimes,
To help companies report in a clear and honest way, there are rules and guidelines created by groups like companies are told they can “do well by doing good”—in other words, be profitable and
the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI). socially responsible at the same time. But that idea can be too simple. To truly make a
These help make sure companies talk about the right things, and that reports can be compared more easily. difference, businesses need to think carefully about what they stand for—and who they’re
really trying to help.
A big idea in non-financial reporting is materiality. That means companies should focus only on
the most important topics—things that really matter to their stakeholders (like customers, investors, SASB and the Outside-In Approach to Materiality
employees, and the public). It helps companies decide what to include in their reports and what they can
leave out. Even though materiality started in financial reporting, it’s now a big part of sustainability ● What is SASB?
reporting too. Different organizations have slightly different ways of deciding what’s “material,” but the
basic idea is the same: report on what could change someone’s opinion or decision about the company. The Sustainability Accounting Standards Board (SASB) is a U.S.-based organization created in 2011.
Doing a materiality assessment (which means figuring out what’s most important) is not just good for It was designed to help investors understand how environmental and social issues can affect a

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company’s financial performance. SASB is widely respected—even the European Commission ● SASB’s View on Business and Society
considers its framework compatible with EU standards.
SASB follows a shareholder-first approach, which means the main goal is to maximize profits for
● What Does “Outside-In” Mean? investors. In this view, social and environmental issues are only considered important if they affect the
company’s financial performance—such as its revenue, costs, or risk levels. Stakeholders like workers,
SASB focuses on how external factors (like climate change or regulations) impact the business. communities, or the environment are not the focus unless their concerns impact the company’s bottom
That’s why it’s called “outside-in” materiality. The main question SASB asks is: “Would this issue line. This reflects a traditional business mindset, where doing good is acceptable, but only when it also
affect a company’s profits or financial health?” If the answer is yes, it’s considered material—meaning supports the company’s ability to make money.
important enough to report to investors.
● How This Affects Business Strategy
● How Does SASB Decide What’s Material?
SASB’s model helps companies focus on things that make good business sense. It encourages them to
SASB makes it easier for companies by doing the work for them. It has: reduce risks, like avoiding fines or damage to their reputation. It also helps them find new opportunities,
such as creating eco-friendly products or using resources more efficiently. By reporting clearly,
● Created Materiality Maps that list key issues for 79 different industries. companies can build more trust with investors. The main idea is to connect sustainability with business
● Used expert research and financial analysis to decide what topics truly matter for each sector. success—doing good is encouraged, but mostly when it also helps the company do well financially.
● For example, for the airline industry, fuel efficiency might be a material issue. For tech
companies, data privacy might be key. GRI and the Inside-Out Approach to Materiality

What is GRI?

The Global Reporting Initiative (GRI) began in the late 1990s with help from the United Nations
Environment Programme. It was created to make company reporting more open and honest, especially
about social, environmental, and economic impacts. What makes GRI special is its multi-stakeholder
approach—it includes input from many different groups, such as businesses, NGOs, communities,
investors, and workers. The main goal of GRI is to help both companies and their stakeholders understand
and make better decisions about sustainability.

What Does “Inside-Out” Mean?

GRI flips the SASB model. Instead of asking, “How do outside issues affect the company?” (outside-in),
GRI asks: “How does the company affect the outside world?” This is inside-out materiality—focusing
on how business operations impact people, the environment, and society.

How Does GRI Decide What’s Material?

(Example - Materiality Map; You can find other samples in google)
GRI uses a Materiality Matrix to prioritize topics. It has two axes:
● Why Use Standardized Assessments?
● Y-axis: How important the issue is to stakeholders
SASB’s standardized method: ● X-axis: How big the company's impact is on the issue

1. Saves companies time and money.

2. Makes reporting more consistent across companies.
3. Avoids the fear of “losing out” by being too honest—since everyone follows the same rules.
4. The process is updated every three years, with input from experts and public comments.

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 ● Reflecting a company’s true contribution to sustainable development.
● It encourages companies to think about how their structure and management support
responsibility—not just how to make sustainability profitable.

SASB vs GRI: A Quick Comparison

Aspect SASB GRI

Materiality focus Outside-in (impact on the company) Inside-out (impact of the company)
Main audience Investors All stakeholders
Assessment method Standardized, industry-specific Subjective, based on stakeholder input
Approach to strategy Business case for sustainability Broader focus on long-term legitimacy
Key strength Comparability and simplicity Depth, inclusiveness, and impact-awareness

Materiality Assessment in Strategic Management

(Sample Materiality Matrix)
What is Materiality Assessment?
This matrix helps companies figure out which issues to report on. But unlike SASB, GRI doesn’t
provide strict rules. Instead, it encourages open dialogue with stakeholders (e.g., surveys, interviews, Materiality assessment is a structured approach that enables organizations to identify, prioritize, and act
workshops) and offers suggestions, not set requirements. Because of this, GRI’s materiality process can on the environmental, social, and economic issues most relevant to both their business operations and
be more subjective and vary from one company to another. stakeholders. It serves as a strategic lens for determining which sustainability matters require attention.

● Stakeholder Engagement is Key Materiality is viewed through two key perspectives:

With GRI, companies are expected to actively engage with stakeholders—not just investors, but also: ● Outside-in materiality considers how external sustainability issues—such as climate change,
Employees, Communities, NGOs, Vulnerable groups and Suppliers. This helps ensure that reporting resource scarcity, or regulatory changes—affect the company’s performance and risk profile.
reflects real-world concerns, not just what’s financially relevant. Some companies misinterpret GRI’s ● Inside-out materiality focuses on the company’s impact on society and the environment, such as
approach by thinking like SASB—focusing on risks to the company, rather than the company’s impacts. emissions, labor practices, or community welfare.
GRI has worked to clarify this misunderstanding.
How It Helps in Strategic Management
● GRI’s Values and Vision
Strategic management typically involves four steps: Strategic Analysis, Strategy Formulation, Strategy
GRI promotes a stakeholder-oriented view. It believes that companies shouldn’t just focus on profits for Implementation and Strategic Control. Materiality assessment plays a vital role in the Strategic Analysis
shareholders. They should also serve the interests of all who are affected by their actions. So while GRI and Strategy Formulation stages.
doesn’t ignore investors, it doesn’t prioritize them above others. The aim is to build trust, legitimacy,
and long-term sustainability through responsible behavior. 1. Strategic Analysis – Enhancing Focus through Filters

● Strategic Implications In an era of information overload, organizations must filter vast amounts of data to focus on what is most
critical. Materiality assessment assists in this process through two types of filters:
GRI’s approach isn’t just about profits. It’s about:
● Surveillance Filter: What information is noticed.
● Understanding how business operations affect society and nature. ● Mentality Filter: How the information is interpreted.
● Building long-term support from all stakeholders.

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2. Strategy Formulation – Ensuring Alignment and Coherence

After analyzing strategic options, organizations must prioritize and align their initiatives. Materiality
assessments provide a reference frame to guide this selection process.

● Stakeholder Alignment: Material issues—such as employee well-being, supply chain

transparency, or carbon reduction—are used to align strategies with stakeholder values and
expectations.
● Strategic Consistency: Materiality helps avoid conflicts between different strategic initiatives by
ensuring all actions are grounded in shared priorities.

Conclusion
Materiality assessment is a valuable tool for integrating sustainability into strategic
decision-making. It helps companies identify and prioritize sustainability issues that are most important to
their business and stakeholders. The approach can differ depending on the focus: the outside-in
materiality focuses on external risks, such as market or environmental factors, and is often used for risk
management, like the SASB framework. On the other hand, inside-out materiality looks at how a
company’s activities impact stakeholders, encouraging transparency and engagement, as seen with the
GRI framework. This approach not only helps firms understand risks but also offers opportunities for
open strategizing by involving stakeholders in the process. Depending on their objectives, companies can
choose an approach that best aligns with their goals: outside-in for risk management, inside-out for
balancing risks and opportunities, or a more comprehensive inside-out approach to deeply embed
sustainability into strategic planning. The choice of framework should align with the company’s
long-term strategic objectives, considering whether the focus is purely on risk mitigation or broader value
creation.

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