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CHALLENGES IN TRANSITION FROM G3/G3.1 TO G4

MATERIALITY ASSESSMENT

Introduction                                                                             

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The concept of a threshold is important in sustainability reporting concerned with a wider range of impacts and stakeholders. Materiality for sustainability reporting is not limited only to those sustainability topics that have a significant financial impact on the organization but it also includes environmental and social impacts that cross a threshold in affecting the ability to meet the needs of the present without compromising the needs of future generations. These material topics will often have a significant financial impact in the near-term or long-term on an organization. They will therefore also be relevant for stakeholders who as such generally focus as on the financial condition of an organization.

The threshold for defining material topics to report should be set to identify those opportunities and risks which are most important to stakeholders, the economy, environment, and society, or the reporting organization

As per GRI the impacts could come in a range of forms, including but not limited to:

  1. Significant ongoing impacts on short-term financial indicators

  2. Changes in the financial position of an organization due to the realization of an opportunity or risk

  3. Cumulative effects over time resulting in financial consequences that are not material in the short-term, but may be material for long-term investors

A blend of internal and external factors must be used to establish whether an Aspect is material, including factors such as the organization’s overall mission and competitive strategy, concerns expressed directly by stakeholders, broader social expectations, and the organization’s influence on upstream (such as supply chain) and downstream (such as customers) entities. These internal and external factors should be considered when evaluating the importance of information for reflecting significant economic, environmental and social impacts, or stakeholder decision making. The significant impacts must be identified by applying Impact Assessment Methodologies or Life Cycle Assessment (LCA).

The content in standard disclosures of material aspects in G4 has been reduced and simplified compared to G3. The data points were added to standard disclosure G4 -18, G4 – 20 and G4 – 21.

(This blog is a part of ABRC Series of blogs to reflect the Challenges of Transition from G3/G3.1 to G4 for Sustainability Practitioners and Managers)

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