How Companies Prioritize ESG Topics Using VSME and Double Materiality Analysis

How Do Companies Prioritize ESG Topics? The answer lies in two approaches: VSME (Value Stream Mapping for ESG) and the Materiality Analysis. Together, they offer a clear method for effectively implementing sustainability strategies. Here are the key points:

• VSME explains ESG processes: It uncovers inefficient areas in the value chain and helps reduce CO₂ emissions, costs, and lead times. For instance, a McKinsey study found that companies optimizing their value chains for sustainability can reduce costs by up to 60% while lowering emissions (McKinsey).
• Materiality defines priorities: With double materiality, companies analyze which topics are financially relevant (outside-in) and which impacts they have on the environment and society (inside-out). Learn more about double materiality analysis. This approach is increasingly required by regulations such as the EU’s Corporate Sustainability Reporting Directive (CSRD).
• Combining the approaches: VSME provides operational insights, while materiality assesses strategic relevance. This creates a solid ESG strategy that aligns internal processes with external expectations, as recommended by the Global Reporting Initiative (GRI).

Quick Overview: VSME and Materiality

With these approaches, companies can strategically prioritize ESG topics, convince stakeholders, and ensure long-term sustainable success. According to a 2023 PwC survey, 83% of investors believe ESG integration will become standard practice by 2026 (PwC Investor Survey).

Double Materiality Assessment (DMA) - Everything you need to know

How to Prioritize ESG Topics: Step-by-Step Guide

Prioritizing ESG topics is achieved by combining VSME and materiality analyses in three steps. Start by identifying ESG risks and opportunities.

Step 1: Identify ESG Risks and Opportunities

The first step requires a detailed analysis of your value chain. Use the VSME framework as a foundation, as it covers sustainability topics similar to the ESRS. Begin by familiarizing yourself with each section of the VSME framework. Explore VSME sustainability reporting.

Internal stakeholder assessment is essential here. Collaborate with leaders from various business units to check data availability and quality. Systematically analyze all relevant topics—from energy consumption and emissions to working conditions and governance. The CDP recommends engaging internal stakeholders early to ensure comprehensive data collection and buy-in.

For example: A manufacturing company could use its VSME sustainability report to show how much CO₂ is generated by energy consumption and which steps are planned for reduction.

Mapping material topics helps small and medium-sized enterprises (SMEs) link ESG topics from the ESRS standards to the disclosure requirements of the VSME standard. Learn about ESRS compliance for VSMEs.

Step 2: Create a Materiality Matrix

The materiality matrix visually presents ESG topics based on their relevance to the company and stakeholder expectations. Start with thorough research and benchmark against other companies in your sector. The GRI Standards recommend benchmarking and stakeholder engagement as best practices for materiality assessment.

Define materiality by considering regulatory requirements, local guidelines, and industry standards. Create a list of potential topics and distinguish between single and double materiality.

Double materiality considers both financial impacts and external effects. The European Financial Reporting Advisory Group (EFRAG) provides guidance on applying double materiality in practice.

Conduct interviews: Speak with executives, investors, employees, customers, and regulators to practically assess priorities. Use these insights to analyze the identified topics—an essential step before prioritization. According to Deloitte, stakeholder interviews are critical for understanding both risks and opportunities.

Step 3: Evaluate ESG Topics Using Data and Feedback

After the analysis, proceed to prioritize the topics. Use the results of your materiality matrix to visualize the most important ESG areas.

Methods such as stakeholder surveys, CO₂ analyses, and risk assessments are proven approaches for effective prioritization. Companies focusing on key ESG metrics often achieve better returns on capital. Discover key ESG metrics for 2025. Research by MSCI shows that companies with strong ESG performance can experience lower costs of capital and improved financial outcomes.

Industry specificity plays a key role. For example, in the food and beverage industry, NGOs strongly drive the environmental agenda. In professional services, clients may expect greater accountability, while NGOs play a lesser role.

Use the materiality matrix to make informed decisions with management and the board. Decide which topics should be disclosed.

Regular review and adjustment of ESG goals ensures alignment with evolving market and stakeholder requirements. Analyze both qualitative and quantitative feedback to continuously improve your strategies. The SASB recommends annual reviews of materiality matrices to stay current with stakeholder expectations.

Stakeholder Engagement and Data Collection

Successful ESG strategies are built on targeted stakeholder engagement. Without the right perspectives and data sources, these strategies often remain superficial and lose impact. Here’s how you can systematically gather stakeholder input and combine this data with VSME information.

"ESG reporting is no longer just a regulatory matter. It demonstrates a company’s commitment to sustainable and ethical practices." – Apiday

Systematically Gathering Stakeholder Input

Engaging stakeholders is a crucial step in developing ESG strategies that build trust and incorporate diverse perspectives. Capturing stakeholder interests early and actively involving them in decision-making is key. The UN Principles for Responsible Investment (PRI) highlight the importance of stakeholder engagement for effective ESG integration.

Structured stakeholder mapping and analysis helps identify, categorize, and prioritize relevant actors. Communication plans should be tailored to different groups—such as investors, customers, and employees—while considering regional and cultural differences.

For example: Cisco conducted an ESG materiality analysis in fiscal year 2023 that included benchmarking, trend analysis, and interviews with key stakeholders. Eighteen core ESG topics were identified, with eight—including climate change, inclusion, corporate governance, talent management, data security, business ethics, human rights in the supply chain, and circular economy—rated as especially important (Cisco ESG Report).

To gain a comprehensive view, companies should provide transparent ESG information and create an environment where stakeholders can openly share their views.

Aligning VSME and Materiality Data

Based on stakeholder feedback, VSME and materiality data should be systematically aligned. This requires a clearly structured approach to ESG data collection for informed decision-making. The initial focus should be on capturing accurate data and measuring key ESG metrics before conducting deeper analyses.

Clear protocols are important to ensure consistency and traceability. Set realistic timelines and integrate regular feedback to continuously improve the process.

Multiple data sources should be used for cross-validation. Specialized teams for data verification and regular training on compliance and ethical standards can help avoid bias. Advanced data and document management systems facilitate coordinated management between IT, procurement, and governance. The World Bank emphasizes robust data management as a foundation for credible ESG reporting.

Instead of immediately ending business relationships in the event of ESG violations, companies should first try to minimize negative impacts together with their partners. Termination should always be the last resort if all other measures fail.

By regularly involving stakeholders, potential ESG-related risks can be identified early, helping to avoid major crises and financial damage. At the same time, feedback should be actively sought during the reporting process to continuously improve the quality and relevance of ESG reporting.

Tools and Methods for Implementation

The successful execution of VSME and materiality analyses largely depends on digital tools that automate processes and ensure high data quality. These tools support the entire workflow—from data collection and analysis to reporting—and help communicate ESG priorities clearly and effectively to all stakeholders. According to Gartner, 85% of organizations will use sustainability reporting software by 2025.

Software Solutions for VSME Implementation

Specialized software offers decisive advantages over Excel, especially through automation and improved data quality. These tools simplify CO₂ accounting and ESG documentation by automatically collecting, processing, and reporting data. While Excel may be suitable for getting started, specialized software enables deeper analysis in the long term and saves valuable resources. See why specialized software is better than Excel for VSME.

Many modern VSME programs use AI to efficiently capture and analyze data. Some of the best-known providers and their strengths include:

For example: Multiplye combines AI-driven data acquisition with expert consulting and supports companies in their ESG strategy—from materiality analysis and carbon footprinting to CSRD-compliant reporting. EQS offers a cloud-based solution for efficient ESG data collection, analysis, and reporting. For small and medium-sized businesses, specially developed ESG assessment tools that ideally work with VSME templates are recommended.

The use of such software solutions is complemented by visualization tools that clearly present the results of the materiality analysis.

Materiality Matrices as a Communication Tool

Visualization tools play a central role in communicating ESG priorities. A materiality matrix is especially helpful, as it displays ESG topics by financial relevance and their impact on the environment and society. This enables companies to systematically address the requirements of customers and stakeholders.

Integrating VSME standards into sustainability reporting provides a solid foundation to avoid arbitrary or excessive demands from large customers. A structured VSME report can also help answer ESG questionnaires from banks by providing clear data on environmental, social, and governance aspects. Learn more about ESG questionnaires.

When engaging with stakeholders, it’s important to identify the relevant sustainability topics—such as CO₂ emissions, energy consumption, or working conditions—and to consider the expectations of major customers. Early communication that reports are prepared according to VSME standards creates transparency and builds trust. Regularly updating the matrix is also essential, as different stakeholders—such as investors, customers, or the public—each have their own priorities. While investors focus on financial risks and impacts, customers and the public place more value on environmental and social aspects.

By adhering to VSME standards, companies can streamline their reporting, minimize the effort for individual requests, and present themselves convincingly to banks, major customers, and investors.

Conclusion: Achieving Sustainable ESG Success with VSME and Materiality

The combination of VSME and materiality analyses provides companies with a clear framework to strategically prioritize ESG topics and act successfully in the long term. This combined approach systematically considers both internal company goals and external stakeholder expectations, resulting in concrete actions that can be directly implemented operationally.

VSME significantly simplifies the entry into ESG reporting. The standard focuses on 100 ESG data points instead of 1,100, offering a practical alternative to full CSRD compliance. This approach is an ideal starting point, especially for companies just beginning to develop their sustainability strategy.

The double materiality analysis goes beyond mere regulatory requirements. It serves as a strategic tool to identify sustainability risks early and respond proactively. This enables companies to secure competitive advantages while minimizing risks.

Current market data also highlights the importance of these approaches: 71% of consumers plan to make more sustainable purchasing decisions, and 64% of Americans are willing to pay more for sustainable products (IBM Institute for Business Value). These figures show that ESG is not just about compliance, but also opens up new business opportunities.

A long-term strategy that incorporates diverse interests can help achieve higher returns. Companies that integrate sustainability into their business strategy are not only better positioned but also more efficient and responsible in managing their environmental impact. This creates added value for all stakeholders.

Analysis of ESG data shows that combining both approaches helps companies allocate resources effectively and increase efficiency. You can start with simple data collection and gradually develop more complex ESG measures that ensure both measurable environmental impact and sustainable business success.

FAQs

What makes the VSME approach unique compared to other ESG analysis methods?

The VSME Approach: Simple and Practical

The VSME approach stands out for its straightforward and practical methodology, developed specifically for small and medium-sized enterprises (SMEs). The goal is to make it as easy as possible for these companies to get started with ESG reporting.

Unlike comprehensive standards such as the ESRS, which often come with complex and detailed requirements, the VSME approach focuses on the essential ESG topics. This allows companies to integrate their sustainability strategies efficiently and purposefully into existing business processes—without getting lost in unnecessary complexity. The International Sustainability Standards Board (ISSB) also advocates for proportionality and relevance in sustainability reporting for SMEs.

With this approach, SMEs can implement concrete and achievable steps towards sustainability that support their own business goals and meet stakeholder expectations.

What is the significance of double materiality analysis for prioritizing ESG topics?

Double Materiality Analysis: A Key to Prioritizing ESG Topics

The double materiality analysis is a crucial approach that enables companies to systematically prioritize ESG topics (environmental, social, and governance). It considers two perspectives: on the one hand, how sustainability topics financially affect the company, and on the other, the impact of the company’s business activities on the environment and society.

This approach is mandatory under the Corporate Sustainability Reporting Directive (CSRD) and requires companies to go beyond purely financial metrics. Through this analysis, companies can not only identify risks early but also recognize opportunities and respond to sustainability trends. Additionally, it strengthens stakeholder trust and supports a corporate strategy focused on long-term sustainability and value creation. Read about ESRS and CSRD disclosure requirements. For further guidance, see the EY guide to double materiality.

Why are specialized software solutions better suited than Excel for implementing VSME and materiality analyses?

Specialized software solutions offer clear advantages over Excel when it comes to implementing VSME and materiality analyses. They save companies significant effort by automating data collection and processing. This not only saves time but also greatly increases efficiency. At the same time, structured data capture improves data quality and ensures that all steps remain fully traceable.

Another benefit is support in meeting demanding regulatory requirements, such as those set by the CSRD. Thanks to integrated reporting functions, this process becomes much easier. Specialized tools also excel at visualizing and analyzing data precisely—a crucial foundation for informed decisions. In addition, these solutions are often more user-friendly and auditable, making them a reliable option for companies aiming to implement their ESG strategies successfully. For more, see Deloitte’s overview of ESG reporting software.