Identify candidate sustainability topics from authoritative sources. Pull from:

• GRI Topic Standards — GRI 302 Energy, 303 Water and Effluents, 305 Emissions, 306 Waste, 401 Employment, 403 Occupational Health and Safety, 405 Diversity and Equal Opportunity, 413 Local Communities, 417 Marketing and Labelling, 418 Customer Privacy, etc.
• ESRS topical standards — E1 Climate change, E2 Pollution, E3 Water and marine resources, E4 Biodiversity and ecosystems, E5 Resource use and circular economy, S1 Own workforce, S2 Workers in the value chain, S3 Affected communities, S4 Consumers and end-users, G1 Business conduct.
• SASB industry standards — financially material topics for your sector. IFRS S1 explicitly references SASB as a source of guidance.
• Sector Standards — GRI 11 Oil and Gas, GRI 12 Coal, GRI 13 Agriculture/Aquaculture/Fishing, GRI 14 Mining where relevant.
• Peer companies' reports — what comparable businesses identified as material.
• Regulatory requirements affecting your business.
• Stakeholder questionnaires you've already received — what customers, banks, and procurement teams have been asking for.

Output: a long list, typically 30–60 candidate topics.

Common mistake. Only listing what feels comfortable. The universe should include topics you might decide are not material, not just those you expect to retain.

Identify and engage internal and external stakeholders. Methods, in increasing order of resource intensity:

• Document review. Customer ESG questionnaires, investor letters, lender questionnaires, government correspondence. Often the highest-signal source for a first assessment.
• Surveys. Most common for SMEs. A 15-question structured survey to 25–50 stakeholders covering customers, employees, lenders, regulators, suppliers, and (where relevant) community representatives is typically sufficient for a first assessment.
• Interviews. Higher signal per respondent. Useful for high-influence stakeholders (key customers, major lenders, board members).
• Workshops. Useful for cross-functional internal alignment and for engaging community stakeholders where relevant.

Document what you asked, who you asked, what each stakeholder responded, and how their input was used. This documentation is what assurance providers ask for. GRI 3 explicitly requires disclosure of the stakeholder engagement methodology.

Common mistake. Treating stakeholder engagement as a "vote" on which topics to declare material. Stakeholder input tests the completeness of your topic universe and challenges internal rankings — it does not replace your structured impact assessment.

The substance of materiality. The work differs by lens:

• Impact materiality (GRI 3). For each topic, describe how the organisation causes, contributes to, or is directly linked to actual or potential impacts on the economy, environment, and people, across operations and the value chain. Characterise each impact by severity (scale and scope), likelihood, and time horizon.
• Financial materiality (IFRS S1 / S2). For each topic, identify sustainability-related risks and opportunities that could reasonably affect future cash flows, access to finance, or cost of capital. Use scenario analysis (per IFRS S2) where it adds insight, particularly for climate. Map each risk and opportunity to lines in the financial statements (revenue, cost of goods sold, capex, asset impairment, provisions).
• Double materiality (ESRS). Apply both lenses. ESRS Implementation Guidance 1 sets out the structured procedure EFRAG expects.

Don't ignore opportunities. Many first-time financial materiality assessments focus only on risks. IFRS S2 and ESRS both expect opportunities (e.g., low-carbon products, financing green projects) to be assessed.

Apply a scoring rubric. The discipline matters more than the sophistication.

• Impact materiality. Most companies use a 1–5 scale on severity (scale × scope × irremediability) and likelihood, often presented as a heatmap. A 3×3 or 5×5 grid adapted from risk management frameworks is standard.
• Financial materiality. Score risks and opportunities by likelihood and magnitude of effect on enterprise value over short, medium, and long-term horizons.
• Double materiality. Score on both axes; topics material under either are material overall.

SME-realistic version. Don't over-engineer the rubric. A clear, documented logic that the team can defend is more important than methodological sophistication. A 5-point scale on each axis with brief rationale per score is enough for a first assessment.

Decide where the line falls between material and not-material topics. Two common approaches:

• Numeric threshold. Everything above 3.5 on a 1–5 scale is material. Simple, defensible.
• Top-N approach. The top 10–15 topics are material, regardless of absolute score. Prevents the threshold from drifting if scores cluster.

Document the threshold and the rationale. Both approaches are defensible; choose one and apply it consistently.

Formal approval at the executive level (and ideally at board level for larger SMEs).

• The board or executive committee reviews and approves the material topics list.
• Document the meeting, the decision, and any topics that were challenged or modified.
• Capture the rationale where the final list deviates from the scored list.

This is critical evidence for assurance. ESRS Implementation Guidance 1 expects clear governance involvement; GRI 3 requires disclosure of the process used and how it was approved.

Create the materiality assessment record. The auditable file should contain:

• The methodology used.
• The topic universe with all candidates considered.
• Stakeholder engagement methodology and results.
• Scoring rubric and per-topic scores with rationale.
• Threshold and rationale.
• Governance approval record (meeting minutes, sign-off).
• Final material topics list.

This becomes a section of your sustainability report and is what assurance providers will request first.