A materiality assessment is the structured process a company uses to identify and prioritise the environmental, social and governance topics that matter most to its business and stakeholders. It helps management decide which issues require strategic action, performance measurement and detailed ESG disclosure. Depending on the reporting framework, materiality may consider how sustainability matters affect the company’s financial prospects, how the company affects people and the environment, or both perspectives together.
For UAE companies, a credible assessment should examine operations, subsidiaries, suppliers, customers and other value-chain relationships. It should be evidence-based, supported by stakeholder engagement and formally approved by senior management or the board.
A topic is material when it is important enough to influence decisions, require management action or warrant disclosure. However, the exact meaning depends on the reporting framework being applied.
Financial materiality considers how sustainability-related risks and opportunities may affect the company’s financial prospects.
Under IFRS S1, sustainability information is material where omitting, misstating or obscuring it could reasonably be expected to influence decisions made by investors, lenders and other users of general-purpose financial reports. IFRS S1 focuses on risks and opportunities that could affect cash flows, access to finance or cost of capital over the short, medium or long term.
Examples may include:
Impact materiality considers the organisation’s actual and potential effects on the economy, environment and people, including human rights.
GRI defines material topics as those representing an organisation’s most significant impacts. These can be positive or negative, actual or potential, and may occur through the company’s own operations or business relationships.
Examples may include:
Double materiality evaluates both directions:
The 2025 DFM ESG Reporting Guide introduces double materiality and encourages companies to consider financial and impact perspectives together. It also connects the assessment with ESG strategy, performance management and reporting.
| Approach | Main question | Primary users | Example |
| Financial materiality | How could this ESG issue affect the company’s prospects? | Investors, lenders and management | Rising cooling costs affect a property company’s operating margins |
| Impact materiality | How does the company affect people or the environment? | Employees, communities, regulators, customers and wider stakeholders | Construction activity affects worker safety and local air quality |
| Double materiality | Is the issue significant from either or both perspectives? | Investors and wider stakeholders | Water use creates environmental impacts and future operating risks for a manufacturer |
A company should confirm which approach is required by its regulator, reporting standard and intended users before designing the assessment.
Without materiality, ESG reporting can become a long collection of unrelated policies, activities and metrics. A credible materiality assessment helps the company:
DFM’s reporting roadmap places stakeholder engagement and materiality analysis before data collection, content development and report design. The guide states that materiality should guide ESG strategy, performance management and report structure.
When a company is ready to convert its approved topics into structured disclosures, ESG Reporting becomes the next logical stage.
Management should first determine why the assessment is being conducted. Possible purposes include:
The selected framework affects the assessment criteria. A GRI-led process will concentrate on significant impacts, while an IFRS S1-led process will focus on material sustainability-related financial information.
The company should map:
GRI’s four-step process begins by understanding the organisation’s context, including its activities, business relationships, sustainability context and stakeholders. It then considers actual and potential impacts across the value chain.
A materiality assessment limited to head-office activities may overlook major impacts and risks within suppliers, outsourced operations or customer use of products.
The company can identify potential topics through:
The initial list should be broad enough to avoid excluding a significant issue before the assessment begins.
Stakeholders are individuals or groups affected by the company or capable of influencing its activities. They may include:
GRI expects organisations to engage relevant stakeholders and experts while identifying and assessing impacts. Stakeholder engagement should also account for groups that may be affected but do not have a direct relationship with the company or may be unable to communicate their views easily.
Engagement methods may include:
| Stakeholder | Sample questions |
| Board and senior management | Which sustainability risks could materially affect our strategy, assets, revenue or access to finance? Which issues require board oversight? |
| Investors and lenders | Which ESG risks could affect future cash flows or capital requirements? Are targets supported by credible investment plans? |
| Employees | What workplace, safety, training or wellbeing issues most affect your experience? Are grievance channels trusted and accessible? |
| Customers | Which environmental or social information do you require from suppliers? Which product, safety or data issues influence purchasing decisions? |
| Suppliers and contractors | Which ESG requirements are difficult to meet? Where could collaboration improve data, labour practices or environmental performance? |
| Operations teams | Where are the largest energy, fuel, water, waste or safety risks? Which improvements are technically achievable? |
| Communities | How do the company’s operations affect local employment, traffic, noise, resources or the environment? |
| Regulators and industry bodies | Which existing or emerging requirements may affect the company? Which sector issues require greater disclosure or control? |
| Finance team | Which ESG matters could affect budgets, provisions, asset values, insurance or financing? What supporting data already exists? |
| Risk and internal audit | Which ESG controls are weak or undocumented? Which reported metrics would be difficult to verify? |
Questions should be adapted to the organisation’s industry, geography and stakeholder relationship.
Each topic should be evaluated using defined criteria.
Possible criteria include:
For negative impacts, GRI considers severity and, for potential impacts, likelihood. Severity may be evaluated through scale, scope and how difficult the harm would be to remedy. Positive impacts can be considered through their scale, scope and likelihood.
Scoring may use a scale such as:
The company should define what each score means. A score of five should not be based only on personal judgement.
Once topics have been scored, management should rank them and establish a threshold for determining which issues are material.
GRI states that organisations should arrange impacts from most to least significant, establish a documented reporting threshold and test the resulting topics with relevant experts and information users. The highest governance body—or senior executives where no such body exists—should approve the final material topics.
Validation should check whether:
The following matrix is illustrative for a UAE logistics and warehousing company.
| ESG topic | Financial significance | Impact significance | Illustrative priority |
| Fleet fuel use and emissions | 5 | 5 | Critical |
| Driver safety and worker welfare | 5 | 5 | Critical |
| Subcontractor labour practices | 4 | 5 | Critical |
| Warehouse energy consumption | 4 | 4 | High |
| Data privacy and cybersecurity | 5 | 4 | Critical |
| Employee turnover and training | 4 | 4 | High |
| Waste and packaging | 3 | 4 | High |
| Physical climate risk | 4 | 3 | High |
| Water consumption | 2 | 3 | Moderate |
| Community investment | 2 | 2 | Monitor |
| Office paper consumption | 1 | 2 | Lower priority |
A matrix is a communication tool. The real assessment consists of the evidence, interviews, scoring criteria, assumptions, approvals and decisions behind it.
| Industry | Topics likely to require assessment |
| Real estate | Building energy, district cooling, physical climate risk, construction materials, worker welfare and tenant wellbeing |
| Logistics | Fleet emissions, subcontracted transport, driver safety, employee conditions and climate disruption |
| Manufacturing | Energy, process emissions, water, waste, worker safety, raw materials and pollution |
| Retail | Product sourcing, packaging, refrigerants, customer data, employee turnover and outsourced delivery |
| Financial services | Financed emissions, responsible lending, customer protection, cybersecurity and climate-related credit risk |
Financial institutions conducting materiality assessments may also connect the process with IFRSLAB’s ESG in Financial Services page.
GRI recommends reviewing material topics during each reporting period to account for changes in activities, relationships and impacts.
IFRSLAB recommends treating materiality as a management and decision-making process rather than a report-design exercise. The assessment should begin with a clear understanding of the company’s business model, reporting obligations, value chain and intended users. Stakeholder engagement should then be combined with operational evidence, regulatory requirements, sector knowledge and financial analysis.
IFRSLAB supports management in developing the topic longlist, selecting appropriate financial and impact criteria, conducting stakeholder engagement and documenting the rationale behind each priority. The process is structured to distinguish broad stakeholder interest from issues that create significant impacts, business risks or strategic opportunities.
Once the topics are validated, IFRSLAB helps translate the findings into governance responsibilities, KPIs, targets and improvement initiatives. The approved material topics can then be incorporated into the company’s ESG strategy and used to structure a technically controlled ESG report. This creates a direct connection between stakeholder concerns, management decisions, performance measurement and public disclosure.
Discuss an ESG materiality assessment for your UAE business with IFRSLAB.
Hassan Mirza
Senior ESG Strategy Consultant, IFRSLAB
Hassan advises organisations on ESG materiality, sustainability strategy, stakeholder engagement and reporting frameworks. His work focuses on converting complex environmental, social and governance issues into clear management priorities, measurable indicators and decision-useful disclosures.
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