TOOLKIT:

Materiality
Assessment
3rd Edition

Created for you by:

BursaMalaysia.com
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DISCLAIMER:
This Toolkit: Materiality Assessment (“Toolkit”) is issued by Bursa Malaysia
Securities Berhad to, among others, assist listed issuers in preparing the
Sustainability Statement as required under the Listing Requirements of Bursa
Malaysia Securities Berhad [paragraph 9.45(2) and paragraph (29), Part A of
Appendix 9C of the Main Market Listing Requirements (supplemented by
Practice Note 9) and paragraph (30) of Appendix 9C of the ACE Market Listing
Requirements (supplemented by Guidance Note 11)].

While this Toolkit is intended to provide the relevant information and

guidance for listed issuers to prepare their Sustainability Statement, it may not
be exhaustive in its coverage. Listed issuers must exercise discernment and
diligence when using this Toolkit. All applicable laws, regulations and existing
Listing Requirements of Bursa Malaysia Securities Berhad should be referred
to in conjunction with this Toolkit.

Although care has been taken to present current and pertinent information
in this Toolkit, Bursa Malaysia Securities Berhad does not make any
representation or warranty, whether implied or expressed, as to the accuracy,
completeness or reliability of the contents of this Toolkit.

In no event shall Bursa Malaysia Securities Berhad be liable for any decisions
made on the basis of the information in this Toolkit or any other claim,
howsoever arising, out of or in relation to this Toolkit. Bursa Malaysia Securities
shall under no circumstances be liable for any type of damages including but
not limited to, direct, indirect, special, consequential, incidental, or punitive
damages whatsoever or any lost profits or lost opportunities.

All rights reserved. The Bursa Malaysia name and logo are registered
trademarks.
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TABLE OF
CONTENTS
1. Purpose 2
2. Background 2
Phase 1 : Identification of Sustainability Matters 4
1.1 Understand company’s distinctive operating context 4
1.2 Identify key stakeholders and understand their needs and 9
expectations pertaining to sustainability-related impacts
1.3 Derive preliminary list of sustainability matters 10
Phase 2 : Prioritisation of Material Sustainability Matters 12
2.1 Apply materiality concept and undertake stakeholder 12
engagement in prioritisation
2.2 Disclose prioritised material sustainability matters in a 20
manner which illustrates the relative importance of each
material sustainability matter
Phase 3 : Review and Validation of Materiality Assessment Process 28
and Outcomes
3.1 Subject the outcome of materiality assessment for validation 28
and approval
3.2 Establish a review process for the materiality assessment 28
process
3.3 Determine the frequency of undertaking the materiality 30
assessment
Appendix 1 - Stakeholder Engagement Survey for Prioritisation of 31
Sustainability Matters Template

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1. Purpose

The purpose of this Toolkit is to provide further guidance to listed issuers (“companies”) on how to
undertake a materiality assessment process. More specifically, the Toolkit covers the following:

a) For the Identification Phase, key considerations that a company should take into account
when deriving a preliminary list of sustainability matters.

b) For the Prioritisation Phase, how to apply materiality, including details on how to take into
account the company’s significant Economic, Environmental and Social (“EES”) impacts as well
as stakeholder needs and expectations. Once the company’s material sustainability matters are
determined and prioritised, how to illustrate the importance of material sustainability matters
relative to one another.

c) For the Outcome & Process Review Phase, relevant considerations pertaining to validation
and approval of outcome of materiality assessment, review of the assessment process, and
determining frequency of assessment.

This Toolkit should be read in conjunction with Bursa Malaysia’s Sustainability Reporting Guide
(“Guide”), including the definitions provided in the Guide.

2. Background

Sustainability matters are the risks and opportunities arising from the EES impacts (i.e. impacts
that relate to sustainability themes such as climate change, anti-corruption, diversity, energy
management, health and safety, labour practices and standards, supply chain management, data
privacy and security, etc.) of a company’s operations as well as the views and expectations of its
stakeholders.

Companies typically have to address various sustainability matters and not all material sustainability
matters are of equal importance. Thus, in managing and disclosing their material sustainability
matters, the amount of attention and resources devoted to each sustainability matter should reflect
the relative priority of these matters.

In sustainability terms, materiality is not only limited to those matters that have a significant financial
impact on the company but also includes consideration of wider EES impacts. Having in place a
materiality assessment process enables a company to map out the sustainability matters which
may contribute to enhanced business resilience and also performance in the short-, medium- and
long-term. Although there is much discussion in relation to the determination of approaches for
assessing materiality in the sustainability context, a common approach can be used, as shown in
Figure 1 below.

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Figure 1: The materiality assessment process

Phase 1 : Phase 2 : Phase 3 :

Identification of Prioritisation of material Review & validation of
sustainability matters sustainability matters process and outcome

• Understand company’s • Apply materiality • Subject the outcome of

distinctive operating
context
• Identify key stakeholders
and understand their
needs and expectations
pertaining to sustainability-
related impacts
• Derive preliminary list of
sustainability matters
concept and undertake materiality assessment for
stakeholder engagement validation and approval
in prioritisation
• Establish a review
• Disclose prioritised material process for the materiality
sustainability matters in a assessment process
manner which illustrates
• Determine the frequency of
the relative importance of
undertaking the materiality
each material sustainability
assessment
matter

In applying this approach, it is important to ensure that the materiality process undertaken is
sufficiently robust or comprehensive to achieve its intended objectives. The key considerations for
each phase of the materiality assessment process are further explained in the remainder of this
Toolkit.

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PHASE 1 2 3

Phase 1 :
Identification of
sustainability matters
In the identification phase of the materiality assessment process, the company should seek to develop
an in-depth understanding of its operating context. This is partly achieved through identification of, and
engagement with, key stakeholder groups to determine their needs and expectations pertaining to
sustainability-related impacts. Consequently, the company would be able to derive a preliminary list of
its sustainability matters.

1.1 Understand company’s distinctive operating context

The company should begin by understanding the context within which it operates to gain broad
knowledge of its sustainability issues. The company should determine its context in terms of its
external and internal issues relevant to its purpose, vision and mission and that can affect the
company’s ability to achieve its intended outcomes related to sustainability.

In order to determine a company’s EES impacts and ultimately what is material to it, the company
needs to understand the context in which it operates. For example, a company operating in a
country which is not politically stable will have to consider the impact this may have on its ability
to operate in terms of potential corruption and interference in its strategic planning and day to
day operations. Similarly, a company operating in a location that is subject to frequent flooding
will have to consider such an impact on its operations. Companies can use techniques such as
Political, Economic, Sociological, Technological, Legal and Environmental (“PESTLE”) or Strengths,
Weaknesses, Opportunities and Threats (“SWOT”) analysis to determine their external and internal
issues.

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Practical help: External Issues

Considerations can include:

• political: type of political system in place, e.g. democracy, dictatorship, level of political
interference in business;

• economic: availability of utilities, such as fuel, gas and water, infrastructure and
transportation, including housing, road, rail, sea and airports;

• financial: recognised financial system, availability and access to financial resources;

• competition: other local companies with a similar purpose and that adopt a competitive
position;

• supply chain management: supplier availability, capacity and capability, level of

technology and customer requirements;

• social: ethnic values, gender issues, bribery and corruption, availability of workforce,
access to education and medical facilities, level of workforce education;

• cultural: heritage buildings/property, indigenous issues such as access to specific

resources herbal/medicinal plants, craft materials, food used in a cultural context for
ceremonial purposes, religious system and aesthetic values;

• market and public demand: current and future market trends for products and services,
including those that are energy and resource efficient;

• technological: availability and access to technology relevant to the company;

• legislative: the legislative framework within which the company operates; and

• environmental conditions: an environmental condition that can affect the company’s

ability to meet its mission or vision including:

- current and future climatic and other conditions, physical conditions, biodiversity,
rare and endangered species, ecosystems, resource availability, renewable and
non-renewable energy; and

- extreme events such as earthquakes, tsunami’s, typhoons, flooding, etc.

Source: Adapted from ISO 14004:2016 Environmental management systems - General guidelines on implementation

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Practical help: Internal Issues

Considerations can include:

• company governance and structure: national and contractual governance frameworks,

such as codes of practice (e.g. Malaysian Code on Corporate Governance 2021),
specific contractual governance requirements, including registration and reporting;
joint ventures and contracted services; and parent company relationships, roles and
responsibilities and authorities;

• legal compliance: status and trends, such as increasing international and local legal
requirements related to climate disclosures, human rights, etc.;

• policies, objectives and strategies: purpose, vision, business, other objectives and
strategies and resources that are needed to achieve them;

• company capacity and capability: capability and knowledge in terms of resources and
competence (e.g. capital, time, people, language, processes, systems and technologies);

• information systems: information flows and decision-making processes (both formal

and informal);

• stakeholders: relationships with, and perceptions and values of, internal interested
parties;

• management systems and standards: strengths and weaknesses of the company

operations, guidelines and models adopted by the company, such as those for
accounting and finance, quality, safety and health, etc.;

• company style and culture: sole trader, family business, public or private company,
management and leadership style, e.g. open or closed company culture, and decision-
making processes; and

• contracts: form, content and extent of contractual relationships.

Source: Adapted from ISO 14004:2016 Environmental management systems - General guidelines on implementation

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Issues can be identified through internal or external sources such as:

Internal Sources External Sources

• Internal stakeholders (e.g. Board, • External stakeholders (e.g. suppliers,

employees); customers, regulators, NGOs/CSOs)
• Board committee and/or management feedback including expectations,
reports and minutes of meetings; concerns, complaints, etc.;

• Business strategy, goals, objectives & • Bursa Malaysia’s Listing Requirements &
policies; Sustainability Reporting Guide;

• Risk management assessments and risk • Relevant regulations and laws;

registers; and
• Internal analysis of megatrends that
are relevant to the company (e.g. talent
management, climate change, cyber
security).
and international agreements and
commitments which may impact
business strategy or drive stakeholder
concerns;
• Topics and emerging trends such as
climate change reported by industry and
peers;
• Underlying criteria for indices and
international standards (e.g. FTSE4Good
Bursa Malaysia Index, Global Reporting
Initiative (“GRI”) Standards);
• Industry standards (e.g. Roundtable
on Sustainable Palm Oil (“RSPO”),
International Petroleum Industry
Environmental Conservation Association
(“IPIECA”);
• Media review (including social media);
and
• External peer reviews.

To obtain a more all-encompassing overview as well as appreciation of its context, a company

should also take into careful consideration the views of its internal and external stakeholders. The
input of external stakeholders is especially pertinent for a company which is in the early stages of
applying materiality or has undergone business changes such as expansion into new industries,
mergers and takeovers, etc., as such a company may have stakeholders whose views have not been
heard before. Engaging with such stakeholders, therefore, allows the company to gain knowledge
of its sustainability issues which may not have been considered or may have been overlooked.

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Food for thought

• What sustainability issues are other companies or stakeholders in the sector (domestically
and internationally) increasingly concerned about?
• Is there any industrial standard or code that the company must adhere to?
• Who are the key stakeholders of the company and how does the company intend to obtain
input from these stakeholders regarding their concerns on sustainability issues?
• What are the possible sustainability issues that may affect the company’s value in the short,
medium and long term?
• What sustainability related risks are being flagged by international bodies (e.g. the World
Economic Forum (“WEF”), United Nations) and have these been considered?

Once the company understands its context, it will be able to list its sustainability issues. The list of
sustainability issues may be further rationalised and refined into categories, taking into consideration
the following alongside business strategies:

• operating industry and business model;

• the company’s business segments;
• operating regions and/or markets;
• internal stakeholders’ responsibilities and interests;
• external stakeholders’ interest and concerns; and
• how sustainability issues are connected to, and overlapping with each other, etc.

Figure 2: Example of identification of sustainability issues via desktop review for a company in
the banking sector

The list of sustainability issues below were identified via various sources.

List of Sustainability Issues (Figure 2)

Sustainability issues identified
Climate resilience
(physical and transition risks)
Green financing
Just transition – financial inclusivity
Consumer protection from scams
Financial literacy of consumers
Data privacy of customers
Microfinancing for small and medium
entities
Climate governance
Supporting human rights
Health and safety
Anti-corruption measures
Anti-money laundering measures
Waste management
Water usage
Social impact/community impact
Emissions management
Energy Management
Supply chain management
Diversity of employees and directors
Labour practices and standards
Digital/contactless banking touchpoints
COVID-19 moratorium transition measures
Source(s)
TCFD Recommendations, CDP
12th Malaysia Plan, Joint Committee on
Climate Change, BNM’s Climate Change
and Principle-Based Taxonomy (CCPT)
12th Malaysia Plan
Media reviews, business activities
Business activities
Business activities, Bursa Malaysia’s LR
Business strategy
Regulators
Trend analysis, regulations
National laws and regulations, business
activities, Bursa Malaysia’s LR
Trend analysis, MACC regulations,
Bursa Malaysia’s LR
Trend analysis, BNM regulations
GRI standards, Bursa Malaysia’s LR
GRI standards, Bursa Malaysia’s LR
BNM’s VBI Framework, Bursa Malaysia’s LR
Bursa Malaysia’s LR,
FTSE4Good, GRI Standards
Bursa Malaysia’s LR, GRI Standards,
SASB Standards
Business activities, Bursa Malaysia’s LR
Business activities, Bursa Malaysia’s LR,
SC’s MCCG
Business activities, Bursa Malaysia’s LR
Business activities
Business activities, regulations

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1.2 Identify key stakeholders and understand their needs and expectations pertaining to
sustainability-related impacts

Stakeholders play an important role to a company’s business, either as advocates, sponsors,

partners or agents of change. Engagement with stakeholders serves a broad purpose focusing
on inclusiveness, responsiveness and building continuous relationships between a company
and its stakeholders. In practice, a systematic approach to stakeholder identification, mapping
and prioritisation (based on their influence and interest) helps ease the company’s analysis of
sustainability matters raised by each stakeholder group. Figure 3 below provides an illustration of
sustainability matters identified pursuant to stakeholder engagement(s).

Figure 3: Example of identification of sustainability issues for a company in the banking sector
persuant to stakeholder engagement(s)

The following figure illustrates the outcomes of engaging with different external stakeholder
groups. Engagement outcomes from these stakeholder groups, as well as that from internal
stakeholders, can be consolidated, categorised and shortlisted into a list of sustainability issues,
asFigure
shown 3 in Figure 3 below:
External stakeholders ListofofSustainability
List Sustainability Issues
Issues (Figure 3)

Sustainability issues identified Stakeholder Groups Sustainability issues identified Stakeholder Groups
Category
Environmental impact NGOs
Environmental impact Responsible lending
Human rights NGOs
Human rights Responsible lending
Labour rights for employees Employees
Workforce diversity Employees
Women empowerment at
Investors Labour rights for employees Employees
management level
Women empowerment at
Personal data protection Investors; Customers management level
Employees
Anti-money laundering Government; Investors
Information technology risk
Government; NGOs; Security
Terrorism management
Investors
Personal data protection Security
Financial inclusion for
NGOs; Investors Anti-money laundering Security
communities
Terrorism Security
GHG emissions Investors
Business continuity Security
Financing for renewable energy Consolidation
Investors Financial inclusion for
projects and alignment communities
Community
Climate change Investors
Overseas expansion strategy Business strategy
Bank Negara Malaysia inquiries Investors
Remuneration for directors and GHG emissions Environment
Regulators; Investors
senior management Financing for renewable energy
Bank fees Regulators; Customers Environment
projects
Interest rates Regulators; Customers Climate change Environment
Access to banking services for Government and
Customers Development in regulations
customers in rural areas regulations
Safety of banking products Regulators; Customers Government and
Bank Negara Malaysia inquiries
regulations
Internal stakeholders Remuneration for directors and
Governance
senior management
Sustainability issues identified
Bank fees Customers
Workforce diversity
Interest rates Customers
Business continuity
Access to banking services for
Development in regulations customers in rural areas
Customers
Information technology risk management
Safety of banking products Customers
Overseas expansion strategy

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PHASE 1 2 3

Generally, when conducting the materiality assessment process, inputs from stakeholders are
required for the following:

• Understanding the company’s context and identification of sustainability matters; and

• Prioritisation of material sustainability matters.

Some companies obtain stakeholder input on sustainability matters during general engagement
sessions which are used to serve broader business objectives (e.g. to assess customer preference
for specific products), while others prefer to conduct exclusive stakeholder engagement sessions
solely for the purpose of a materiality assessment exercise.

Commonly, a company would use different engagement approaches for different categories of
stakeholders and may invest more resources in engagements with stakeholders of higher priority.
The company could approach its stakeholder groups using different methods, such as surveys,
interviews and workshops, considering the effectiveness and efficiency of these methods in soliciting
necessary feedback and input.

For further guidance on how to engage with stakeholders, please refer to Toolkit: Stakeholder
Engagement. Companies may also make use of the Stakeholder Engagement Survey for Prioritisation
of Sustainability Matters Template provided in Appendix 1.

1.3 Derive preliminary list of sustainability matters

From understanding of a company’s operating context as well as the expectations of its key
stakeholders surrounding sustainability-related impacts, the company should be able to derive a
preliminary list of sustainability matters (Figure 4). The preliminary list of sustainability matters is then
subjected to a prioritisation exercise to determine the company’s material sustainability matters.

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Figure 4: Example of categorisation of sustainability issues for a company in the banking sector

The list of sustainability issues on the left was identified from the company’s activities, products and services as well as its business strategy and
policies, industry and peer review, media reviews, references to international sustainability reporting standards (Figure 2) and stakeholder engagements
(Figure 3). It is further streamlined to a shorter list based on a broader set of categories. Items in blue on the left denote items to be combined to form
the following shortlist of issues (on the right) which will then be prioritised in the subsequent stages:

List of sustainability issues (Figure 2) List of sustainability issues (Figure 3) Shortlisted sustainability issues
Shortlisted sustainability issues Category
Sustainability issues identified Source(s) Sustainability issues identified Category
Environmental and social Responsible lending
Climate resilience TCFD Recommendations, CDP Environmental impact Responsible lending
impact of lending activities
(physical and transition risks)
Human rights Responsible lending
th Workforce diversity (including Employees
Green financing 12 Malaysia Plan, Joint Committee on
Workforce diversity Employees gender, age and ethnicity)
Climate Change, BNM’s Climate Change
and Principle-Based Taxonomy (CCPT) Labour rights for employees Employees
Labour rights for employees Employees
Just transition – financial inclusivity 12th Malaysia Plan Information technology risk Security
Women empowerment at Employees
Consumer protection from scams Media reviews, business activities management level management and data
protection
Financial literacy of consumers Business activities Information technology risk Security
management Anti-money laundering and Security
Data privacy of customers Business activities, Bursa Malaysia’s LR anti-terrorism
Personal data protection Security
Microfinancing for small and medium Business strategy Financial inclusion for Community
entities Anti-money laundering Security communities
Climate governance Regulators Terrorism Security Shortlist Overseas expansion strategy Business strategy
Supporting human rights Trend analysis, regulations Financial inclusion for Community Regulatory development Government and regulations
communities and Bank Negara Malaysia
Health and safety National laws and regulations, business
Overseas expansion strategy Business strategy scrutiny
activities, Bursa Malaysia’s LR
GHG emissions Environment Remuneration for directors Governance
Anti-corruption measures Trend analysis, MACC regulations,
Bursa Malaysia’s LR and senior management
Financing for renewable Environment
Anti-money laundering measures Trend analysis, BNM regulations energy projects Bank fees and interest rates Customers

Waste management GRI standards, Bursa Malaysia’s LR Climate change Environment Access to banking services Customers
for customers in rural areas
Water usage GRI standards, Bursa Malaysia’s LR Development in regulations Government and regulations
Safety of banking products Customers
Social impact/community impact BNM’s VBI Framework, Bursa Malaysia’s LR Bank Negara Malaysia Government and
inquiries regulations Climate Resilience Environment
Emissions management Bursa Malaysia’s LR,
FTSE4Good, GRI Standards Remuneration for directors and Governance Health and safety Employees
senior management
Energy Management Bursa Malaysia’s LR, GRI Standards, Waste management Environment
SASB Standards Bank fees Customers
Water usage Environment
Supply chain management Business activities, Bursa Malaysia’s LR Interest rates Customers
Social impact/community Community
Diversity of employees and directors Business activities, Bursa Malaysia’s LR, Access to banking services Customers impact
SC’s MCCG for customers in rural areas
Emissions management Environment
Labour practices and standards Business activities, Bursa Malaysia’s LR Safety of banking products Customers
Energy Management Environment
Digital/contactless banking touchpoints Business activities
Supply chain management Suppliers
COVID-19 moratorium transition measures Business activities, regulations

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Phase 2 :
Prioritisation of material
sustainability matters
From the preliminary list of sustainability matters derived during the identification phase, the company
should then determine the relative importance or materiality of those sustainability matters. The 2 major
considerations are:

• the significance/magnitude of the company’s economic, environmental and/or social impacts; and
• their overall degree of influence on its key stakeholders.

This is because not all material sustainability matters are of equal importance. This component of the
overall materiality assessment process is also known as the prioritisation phase.

Under the prioritisation phase, a company would apply the materiality concept by assessing magnitude of
related EES impacts and undertake engagements to determine the degree of influence of such matters on
the company’s key stakeholders. Ultimately, companies are expected to:

• determine and disclose its prioritised material sustainability matters; and

• develop a materiality matrix to illustrate the relative importance of its prioritised matters.

The essential steps within this phase are further explained below.

2.1 Apply materiality concept and undertake stakeholder engagement in prioritisation

Material sustainability matters refer to those that reflect the company’s significant EES impacts or
substantively influence the assessments and decisions of stakeholders. In other words, materiality is
the threshold where a sustainability matter becomes sufficiently important for focused management
and reporting by the company. Not all material sustainability matters are of equal importance but
more emphasis and efforts need to be placed on managing those material sustainability matters
that have a greater impact on the company.

When defining materiality, a company should consider the key questions set out in Figure 5 below:

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Figure 5: Example of key questions to define materiality

Is it strategically relevant to its business?

Is it important to its stakeholders?
Sustainability matters which have significant
impacts (positive and negative) on its business Different stakeholders may have different areas of
strategy should be identified, monitored and concern. A company should take into account both
managed. its internal and external stakeholders’ interests when
identifying and prioritising material matters.

In addressing the above two key questions, a company should also consider the following:

Does it have an economic, environmental or social impact on the value chain?

A company should consider the extent of economic, environmental and social impacts when assessing the
significance of a sustainability matter to its business or stakeholders, i.e. how a sustainability matter impacts the
entire value chain (e.g. suppliers, customers) of the company as well as the extent of impact.

When applying materiality, a company may find that the level of importance of a sustainability matter
to its business differs from that as perceived by its stakeholders. A materiality matrix, therefore,
becomes a useful tool as it enables a company to determine the degree of materiality (in terms of
significance, influence and/or impact) of each sustainability matter, by plotting out the position of
each sustainability matter based on its significance to the company and its influence on stakeholder
assessments and decisions, as shown in Figure 6.

Figure 6: Example of materiality matrix

Influence stakeholder assessments and decisions

y
lit
ia
er
at
M

Significance of the company’s sustainability impacts

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2.1.1 EES impacts

EES impacts arise from a company’s activities, products and services and refer to the effect
a company has on the economy, the environment, and/or society (positive or negative)1 . For
example, company activities, products and services that can interact with the environment are
called environmental aspects. A company operating a foundry will have environmental aspects
such as emissions of particulate matter, sulphur and nitrous oxide, carbon monoxide, carbon
dioxide, etc., all of which may cause impacts at the local level (to adjacent stakeholders) or
globally, in terms of greenhouse gases.

The relationship between aspects and associated impacts is one of cause and effect. The
company should have an understanding of those aspects that have or can have significant
environmental, social or economic impacts that it may find necessary to address to ensure the
achievement of its mission, vision, values and business strategy.

The following is an example from the construction sector which identifies some typical activities
that may occur in that sector. The example then identifies EES aspects and their associated
impacts.

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GRI Standards
1

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Figure 7: Example of EES Impacts in the construction sector

Activity Land clearing / Site cleaning Processes Concrete pouring Products Completed structure
/ Process Concrete testing
Soil removal (Excavation)
Use of contractors Traffic management

Activity / Process Environmental Environmental Economic Aspect Economic Impact Social Aspect Social Impact
Aspect Impact
Land clearing • Leakage / • Land, water and • Equipment costs • Temporary loss of • Employment of • Changing local
discharges to land, air pollution • Labour costs income foreign workers - cultural values
water and air • Land / soil - increased cultural issues • Reduced quality of
• Carbon loss degradation poverty • Health & safety at life due to loss of
• Loss of top soil • Biodiversity loss • Income loss for work income
• Climate change community • Loss of life

Excavation • Leakage / • Land, water and • Equipment costs • Reduced costs • Employment of • Changing local
discharges to land air pollution • Labour costs • Costs of foreign workers cultural values
and water • Land / soil prevention of • Health & safety • Loss of life
• Emission degradation environmental standards at work
of harmful fumes • Climate change harm
(equipment) • Clean up costs
• Economic
compensation
Use of contractors • Depending on the • Depending on the • Increased money • Expansion and • Introduction of • Changing cultural
• Need for work task assigned work task assigned circulating in the economic growth foreigners into values
imported labour local community in the local local community • Disruption of
• Reduced cost of community work activities by
labour • Increased profit protestors

Traffic management • Fuel use • Depletion of • Increased costs of • Reduced income • Inconvenience • Reduction in
resources diversion human health

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Companies are not expected to address all their EES impacts but are expected to shortlist
those that are significant. The determination of significance is subjective but can be based on
a set of criteria. EES significance can relate to the relevant aspect (e.g. type, size, frequency)
or the impact (e.g. scale, severity, duration, exposure). Other inputs may also be considered
when establishing significance criteria, including information on legal requirements and the
concerns of internal and external stakeholders.

Depending on the sector the company operates in, as well as the business strategy adopted,
the significance of EES impacts may be assessed by applying other lenses which the company
sees as critical. For example, intellectual property assets may be considered critical criteria
for some businesses. In this case, a company may also want to consider its EES impacts in the
context of intellectual property for instance, the importance of talent attraction and retention
on the ability of the company to build up its intellectual property assets (especially in the
information and technology sectors).

A company may want to involve internal stakeholders from a number of relevant business
functions in the prioritisation of sustainability matters as they would be able to provide
meaningful assessment of, and insights into, the significance of the EES impacts.

The evaluation of significance could be based on a combination of likelihood (probability/

frequency) of an occurrence and its consequences (severity/intensity). The use of a scale
or ranking can be helpful in assigning significance, using quantitative or qualitative terms for
example a numeric value, or levels, such as high, medium, low, or negligible. The company
may find it useful to evaluate the significance of its EES aspects and associated impacts by
combining results from the criteria. It should decide which of its EES impacts are significant,
e.g. by using a threshold value.

This exercise should be completed for all activities and it can be useful to group a company’s
activities, products and services to assist in the identification and evaluation of the associated
aspects and impacts. A grouping or category could be based on common characteristics, such
as company units, geographical locations, operational workflows and similar activities. The
company should now consult its stakeholders to see if they are impacted.

With reference to Figure 8 below, a construction company may have concerns such as noise,
(added in ‘Significant Environmental Impacts - Land clearing’ example below) which was not
seen by the company as relevant but was viewed as relevant by their stakeholders.

A company may find that the level of importance of a significant EES impact to its business
differs from that as perceived by its stakeholders. These significant EES impacts must now
be considered in the context of determining whether these substantively influence the
assessments and decisions of stakeholders and what that does to the company. With reference
to Figure 8 below, a construction company may set a threshold value of 60% for this example
in order to present its EES impacts to its stakeholders. Which in the case of the example below
would translate to the preliminary inclusion of biodiversity loss, changing local cultural values,
and temporary loss of income as material sustainability matters.

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Figure 8: Example of significance of EES Impacts – Land clearing

A company needs to determine the significance of its EES impacts. Firstly, it sets criteria
related to environment, social and economic impacts it sees as relevant to make this
determination. It then scores each activity against the criteria using a scale (100%, 80%,
60%, 40%, 20%) based on a hierarchy of importance with 100% being of most importance
and 20% being of least importance.

Significant environmental impacts – Land clearing

EES Impacts/ Air quality Water Land loss Habitat Average

Criteria quality
Air pollution 100% 0% 0% 60% 40%
Water pollution 0% 100% 0% 80% 45%
Land pollution 0% 20% 100% 80% 50%
Land/soil 0% 0% 60% 60% 30%
degradation
Biodiversity 40% 40% 60% 100% 60%
loss
GHG 100% 0% 0% 80% 45%
Noise (added 80% 0% 0% 40% 30%
by stakeholders
during
consultation
process)

Significant social impacts – Land clearing

EES Impacts/ High Presence High Limited Average

Criteria proportion of imported proportion access to
of children labour of elderly medical
in local in local facilities
community community
Changing local 60% 100% 60% 80% 75%
cultural values
Reduced 80% 20% 100% 80% 70%
quality of lie
due to loss of
income
Loss of life 60% 100% 60% 60% 70%

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Significant economic impacts – Land clearing

EES Impacts/ Importance Importance Loss of Economic Average

Criteria of of money land for impact of
employment circulating agriculture change in
to local in local to local lifestyle
community community community
Temporary 80% 80% 80% 80% 80%
loss of income
increased
poverty
Income loss for 60% 80% 20% 60% 55%
community

2.1.2 Influence on stakeholder assessments and decisions

Under the identification phase of the materiality assessment process, the company is expected
to obtain input from a range of internal and external stakeholders in order to better understand
its operating context as well as identify a preliminary list of sustainability matters that are
relevant to the company. As described earlier, this is typically undertaken via:

a) general engagement sessions which are used to serve broader business objectives (e.g.
to assess customer preference for specific products); or
b) dedicated stakeholder engagement sessions solely for the purpose of identifying a
preliminary list of sustainability matters as part of a materiality assessment exercise.

For the prioritisation phase, the focus is on determining those sustainability matters that are
most material to the company. Similar to the identification phase, stakeholder engagements
for the purpose of prioritisation may be facilitated via existing, ongoing engagement channels,
or via engagements that specifically designed for the said purpose.

It is worth noting that, in determining sustainability matters that are most material or critical to
the company, there are two essential steps that companies should undertake, namely:

Step 1: Assessing importance of specific stakeholder groups

The process of assessing how important each stakeholder group is, be it internal or external, to
a company. This entails assigning weightage to each group according to importance/priority
to the company. For this exercise, it is worth noting that the weightage solely reflect the degree
of importance of each stakeholder group to the company and are not dependent on the
sustainability matters that they are concerned with or those under assessment.

Further details on the stakeholder prioritisation process are also provided in Toolkit: Stakeholder
Prioritisation.

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Step 2: Assessing importance of each sustainability matter to each stakeholder group

The assessment process takes into account the sustainability matters that are raised by each
stakeholder group and the relative importance of each matter to that group.

Companies may make use of the Stakeholder Engagement Survey for Prioritisation of
Sustainability Matters Template provided in Appendix 1.

Please see Figure 9 below:

Figure 9: Example of determining stakeholder influence

The following table related to the construction example shown earlier outlines how each
of the stakeholders view the importance of the EES impacts that have been determined as
significant by the company.

Significant Customers Local Regulators Employees Investors Media

EES Impacts/ Community
Criteria
Biodiversity loss 20% 100% 80% 20% 40% 80%
Changing local 20% 80% 40% 80% 20% 60%
cultural values
Temporary 20% 60% 20% 100% 20% 40%
loss of income
– increase
poverty

Note: For the example above, the assumption is that all 6 stakeholder groups are accorded
equal weightage/importance. Hence, in determining overall influence on stakeholder
assessment and decision for each Significant EES Impacts/Criteria and a simple average of
all percentages is used.

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Best practice: Stakeholders

The GRI Standards suggests that the stakeholder engagement process should take into
account “those who are unable to articulate their views (such as future generations, fauna and
ecosystems) and whose concerns are presented by proxies (for example, NGOs acting on their
collective behalf); and those with whom the company cannot be in constant or obvious dialogue”
when applying materiality.

For example, an oil and gas company involved in offshore exploration activities may cause
significant impact on the biodiversity of marine areas within its range of activities which might
not be represented by any stakeholder. In this case, the company should take into account risk
of loss of biodiversity in prioritising its sustainability matters.

By following the steps above, the company will be able to determine the overall importance/
materiality of all sustainability matters (as well as their relative importance when compared to
one another) when consolidating them into a single prioritised list. This exercise will also help to
determine the position of each sustainability matter along the y-axis of the materiality matrix.

2.2 Disclose prioritised material sustainability matters in a manner which illustrates the relative
importance of each material sustainability matter

Upon the completion of the steps undertaken under the Prioritisation Phase, the company would
have a list of its prioritised material sustainability matters, including the relative importance of
each matter as compared to one another. Subsequently, when disclosing the company’s material
sustainability matters, the relative priority of these matters should be similarly reflected. This would
enable readers to develop a deeper appreciation of where the company’s attention, resources and
efforts are being directed.

The outcomes of the materiality assessment in terms of the significance of EES impacts to the
company or influence on stakeholder assessments and decisions are best illustrated through a
materiality matrix as provided in Figure 10 below.

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Figure 10: Example outcome of materiality assessment visualised through a materiality

matrix

The ‘x’ axis represents the significance of a company’s EES impacts. The ‘y’ axis represents influence
on stakeholder assessments and decisions.

A company which applies materiality for the first time may face difficulties in coming up with a
comprehensive rating approach when prioritising its sustainability matters. Therefore, such a
company may start by adopting an approach which rates significance of a sustainability matter to
business along a scale of ‘high’, ‘medium’ and ‘low’. This approach should then be similarly applied
to determining the significance to stakeholder assessment and decisions.

A company should set a threshold (as indicated in Figure 10 above) on the materiality matrix for which
sustainability matters beyond the set limit would be considered material. In doing so, the company
may consider the threshold used for its risk management framework in determining significant
risks to enable better linkage between its material sustainability matters and risk management.
Sustainability matters falling in the ‘high materiality’ segment are interpreted to have the greatest
significance to the company’s long-term business value or stakeholders’ interest, and should be
prioritised for their management and reporting.

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There could also be instances where a material sustainability matter need not be highly significant
to both the business and its stakeholders. It occurs when the company is able to foresee significant
emerging sustainability risks but the stakeholders do not, and vice versa. Taking into such
consideration, an alternative method of setting threshold may be as follows, as shown in Figure 11
below:

Figure 11: Example of materiality thresholds

While applying materiality enables the company to determine its material sustainability matters and
allow for better management and reporting, it does not mean that sustainability matters determined
to be non-material should be completely omitted from management. The company should exercise
its judgement to determine the balance between resources invested in, and the expected outcome
of, the management of its risks and capitalising on opportunities that may arise.

In disclosing sustainability matters, the emphasis should reflect the relative priority of these material
sustainability matters. This means that more material sustainability matters (e.g. sustainability matters
falling under the ‘High Materiality’ segment) should be given more resources and consequently
warrant more robust disclosures. On the other hand, less resources may be allocated for sustainability
matters that fall within the segment(s) labelled as ‘Low/Medium Materiality’.

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Figure 12: Example of materiality matrix

Below is a materiality matrix depicting the construction example (Figure 9) earlier.

Please note that the illustration given above is a highly-simplified version of determining significance of EES impacts
on the company. Every company values its business from different perspectives and some with the assistance of a
range of different valuation models

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Figure 13: Example of materiality assessment – Significance of EES impact

Significance of the company’s sustainability impacts

A semiconductor manufacturing company intends to assess the significance of its EES

impacts related to labour practices involving use of foreign labour to its business and to what
extent the sustainability matter affects the achievement of its business strategy. Firstly, the
company determines the criteria it sees as crucial in determining success toward business
strategy. These include revenue, cost, and media. The assessment is conducted jointly by the
Management Committee, Risk Management Committee and Sustainability Committee, with
inputs from relevant Heads of Department, where necessary. Labour practices are assessed
against each criterion, and given a significance rating of 0%, 50% and 100%. (0% being ‘low’
significance, 50% being ‘medium’ significance and 100% being ‘high’ significance).

The outcome of the analysis is as follows:

Criteria Significance
Revenue 50%
Cost 50%
Media 80%
Overall significance of the company’s EES impact – labour 60%
practices

From the perspectives of revenue, cost and media, labour practices are considered material.

Each company has to decide for itself how the company’s value (which may also include the
cost of externalities considered by more mature and sophisticated companies) is determined,
and subsequently how each sustainability matter affects its valuation.

The overall significance of the company’s EES impact for labour practices at ‘60%’ is the average
of all 3 criteria. According to the scale provided earlier, ‘60%’ indicates that the significance level
is slightly above medium.

The position of labour practices on the materiality matrix, from the perspective of the
company, will be at the 60% mark of the x-axis, as follows:

Figure A: Labour practices from perspective of company

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Influence on stakeholder assessments and decisions

Stakeholder Employees Customers Investors Community Government NGOs Overall

group and influence on
regulators stakeholder
assessments
and decisions
– labour
practices
Stakeholder 30% 20% 20% 15% 10% 5%
prioritisation– (A)
Labour practices 80% 90% 60% 50% 70% 90%
– significance
to each
stakeholder
group – (B)
Influence on 24% 18% 12% 7.5% 7% 4.5% 73%
stakeholder
assessments and
decisions
– (A) x (B)

The company has determined that its employees are its most important stakeholder group, and
thus assigns a relatively higher weightage of 30%, followed by customers and investors which
the company sees of equal importance (20%). Overall, the ranking of the company’s stakeholder
groups is as follows: employees, customers and investors, community, government and regulators
and NGOs. The total weightage of all stakeholder groups is 100% in row (A).

Each of the stakeholder groups is engaged separately to obtain its feedback on how significant
labour practices are to the group. It is found that customers and NGOs rate it as highly significant at
90%, followed by employees, government and regulators, investors and community, as recorded
in row (B).

The overall significance of labour practices to stakeholder assessments and decisions is 73%. While
customers and NGOs both perceive the significance of labour practices at 90%, their contribution
towards the overall influence on stakeholder assessments and decisions are different: the former at
18% and the latter at 4.5% only. This is because of the different weightage assigned to them in row
(A) based on the priority of the stakeholders to the company.

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The position of labour practice on the materiality matrix, from the stakeholders’ perspective,
will be at the 73% mark of the y-axis, as follows:
Figure B: Labour practices from perspective of stakeholders

Materiality Matrix

Combining the two axes, the company determines the position of labour practices on the
materiality matrix. The company finds that it is within the range of material sustainability
matters (exceeded the threshold) and requires focused management and reporting.

Figure C: Example of combined perspectives for labour practices

For further guidance on how to construct a materiality matrix, please refer to Toolkit: Materiality Matrix.

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The end result of the prioritisation process should be a list of material sustainability matters which
have the potential to create risks and opportunities to the company. These risks to the company can
include, reputational risk, fines for non-compliance to legal requirements, loss of investor confidence,
decline in customer support, etc., and opportunities, such as increasing investor confidence, growing
the customer base, motivating employees to increase productivity and new business opportunities.

Companies need to have focused efforts to manage, monitor and disclose such matters. It is
important to note that while sustainability matters not considered material need not be actively
managed or monitored, they should nevertheless be kept in view.

The company now needs to address these risks and opportunities through setting performance
indicators related to the material sustainability matters, see Toolkit: Management Approach. 

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Phase 3 :
Review and validation of
materiality assessment
process and outcomes
Subsequent to the completion of the Prioritisation Phase, the company should develop and conduct
relevant review and validation exercises. The steps within this phase have been illustrated below and are
further explained in detail under associated sub-sections.

3.1 Subject the outcome of materiality assessment for validation and approval

It is important that the process and outcome of the materiality assessment are reviewed and approved
by senior management. The outcome should also be approved or endorsed by the Board. Together,
this ensures the integrity and credibility of sustainability disclosures. Approval at the senior levels
of the company will secure buy-in across the company and ensure adequate response to material
sustainability matters by ensuring allocation of resources and accountability for the management of
these matters.

3.2 Establish a review process for the materiality assessment process

The process and outcome of the materiality assessment should be reviewed and endorsed to
ensure accountability is demonstrated. Best practice suggests that this review and endorsement
should be properly documented and signed-off by the Board.

The Board may delegate the oversight of the review process to the Sustainability Committee, Chief
Executive Officer, Chief Sustainability Officer, or their equivalent, but ultimately it is the Board’s
responsibility to ensure the robustness of the review process and the accuracy and reliability of the
outcome.

The review process allows users of the sustainability disclosures access to credible information for
making informed decisions. Such practice also enables clearer communication of the tone from the
top, and drives sustainability management throughout the company, ensuring adequate response
to material sustainability matters.

A company may consider leveraging its internal auditors in the review process, to provide internal
assurance on the effectiveness and integrity of the materiality assessment process. Independent
professional consultants may also be engaged to perform the review process.

Aside from providing assurance on the integrity and effectiveness of process and outcome of the
materiality assessment, reviews may also enable enhancement opportunities to be identified to
improve the overall materiality process.

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Best practice: AA1000 – Principles of Materiality

The review of process may take into consideration the following adherence criteria to the
Principle of Materiality, provided by AA1000 AccountAbility Principles Standards 2018.

COMMITMENT, INTEGRATION & CAPACITY BUILDING

1. Establish a company-wide, robust, systematic and ongoing materiality determination

process under the governance of senior management, including key cross-functional
involvement.

2. Ensure integration of the assessment process across the company, including through
relevant processes, such as risk management and compliance with laws, regulations,
and internal policies and procedures.

3. Provide the necessary competencies and resources to apply the results of the
materiality assessment process.

MATERIALITY DETERMINATION

4. Set consistent and clear boundaries, as well as a purpose, time period and scope, for
the materiality assessment, with underlying assumptions appropriately documented.

5. Identify and fairly represent topics from a wide range of sources.

6. Evaluate the relevance of identified material sustainability topics based on suitable and
explicit criteria*.

7. Determine the significance, likelihood, and present and expected future impact of
identified material sustainability topics, using appropriate criteria and thresholds*.

8. Take into account the evolving sustainability, macroeconomic, geopolitical and

regulatory contexts and maturity of topics and concerns, allowing for industry- related,
geographical, cultural and operational-level differences.

9. Include a means of addressing conflicts or dilemmas arising from diverging or conflicting

expectations regarding material topics.

COMMUNICATION

10. Create and disclose a comprehensive and balanced understanding and prioritisation of
material sustainability topics for the company and its stakeholders.
* Criteria and/or thresholds that are credible, clear and understandable as well as replicable, defensible and can
be subject to external assurance.

Source: AA1000 AccountAbility Principles Standards 2018

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3.3 Determine the frequency of undertaking the materiality assessment

A company should from time-to-time reconsider its material sustainability matters, to ensure recent
developments and changes have been incorporated and considered. While a full and detailed
materiality assessment may not be required annually, the review of material sustainability matters
should be conducted at least on an annual basis.

Nevertheless, the company shall at least on an annual basis consider if there is a need to conduct a
full materiality process. In making such consideration, the company shall take into account factors
internal and external to it, including changes in supply chain, changes in global legislations and
regulations, etc. This may be conducted annually, at the end of each financial year following a review
in preparation for the next year.

Under certain circumstances (e.g. if a full materiality assessment was conducted in the previous
reporting cycle and no major changes to the business model or context occurred), the company
may choose to conduct a limited scale review instead of a full materiality assessment process. The
limited scale review entails the company engaging a smaller sample of stakeholders to reaffirm key
issues and identify any emerging or new issues.

Apart from ensuring that the business strategy, which incorporates sustainability considerations, is
kept updated to reflect current business and market conditions, frequent review also ensures that
sustainability matters being managed and reported remain material to the business and aligned to
stakeholder needs.

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Appendix 1 - Stakeholder Engagement Survey for Prioritisation of Sustainability Matters

Template

Dear Sir or Madam,

[Insert company name] is currently preparing our annual Sustainability Statement for [insert year].
In managing our sustainability matters, we would like to seek your feedback in prioritising the
sustainability matters which are managed by the Group. Material sustainability matters are key
topics that are important to the Group and to our valued stakeholders.

By completing this survey, you will aid us in directing our attention and resources to sustainability
matters which are most important to you.

This survey consists of [insert number of questions] and should take [XX minutes] of your time.

Thank you for your feedback.

1. Name of respondent

2. Number of years in current company

3. Please indicate your relationship with [insert company name]:

O Board of Director
O Employee
O Shareholder/Investor
O Supplier
O Customer
O Regulator
O Trade Association or Industry Organisation
O Local Community
O Civil Society Organisation
O Other (please specify)

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4. We have identified the following sustainability matters as relevant to the company. Please
tick the box indicating the degree of importance (arranged from least important to most
important) of the sustainability matters identified below:

Sustainability Descriptions Rating of sustainability matters (please select 1 rating below)

Matter of the
sustainability
matter 1– 2– 3– 4– 5–
Very Low Low Moderate High Very High
Importance Importance Importance Importance Importance

Qualitative Section (Optional)

1. Apart from the sustainability matters that have been identified, in your view, what are the other
sustainability-related issues relating to the [insert company name] that are of particular concern
to you? Please explain.

a) Economic-related issue:

b) Environmental-related issue:

c) Social-related issue:

d) Governance-related issue:

e) Others:

2. Following from Question 1, what are the ways in which the Group may address the issues
raised?

3. Is there any other feedback that you would like to share in respect of the management and
reporting of our sustainability matters?

- End of survey -

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