IWA 48:2024 4.5.1-2: Base materiality on current, robust data, consider both inside-out and outside-in impacts, and avoid selectivity

What does 4.5.1-2 require?

Materiality is the quality attached to ESG factors and impacts that lets the organisation pick out and rank its positive and negative impacts, build strategy and action plans, make change happen, and let interested parties and intended users judge it and its products and services; a materiality assessment is the systematic way of deciding what is significant inside and outside the organisation, since most reporting regimes expect a consistent, transparent determination of what matters followed by proportionate action. The organisation grounds materiality in current data and information whose quality, accuracy, timeliness and validity can be traced and seen from the start of the process, and revisits them so they stay current, which both lends credibility and catches shifts in materiality within and between reporting cycles. Because material events can strike at any time, it keeps routines for reviewing ESG impacts regularly and judging their significance for itself, its supply chain and others, and acts where needed. It identifies every impact at the outset and resists the temptation to leave out a significant one that interested parties care about but it would rather not face, remembering that a critical or significant impact may be real or only perceived, direct or indirect, historic, current or future, and specific to an entity, a sector or a particular party. Two concepts frame the judgement: the difference between the organisation's effect on the outside world and the outside world's effect on the organisation, read broadly from a sustainability standpoint including economic factors and indirect effects on well-being; and the accounting distinction between financial risk (anything that does or could move the organisation's financial position) and non-financial risk such as reputational damage from a missed emissions target, which can still bite financially through brand erosion, enforcement, fines, lost licences or ineligibility for contracts.