Materiality test

Each year, Alliander takes a structured approach to deciding what topics should be covered as a minimum by the annual report. To do this we use a materiality test. The assessment of the material topics and the impacts of these topics on the economy, the environment and stakeholders, including supply chain impacts and human rights, forms the basis for the integrated annual report and takes place at an early stage of the reporting process. In 2023, Alliander carried out a broad topic-oriented assessment based on the EU Corporate Sustainability Reporting Directive. This has resulted in a double materiality approach, in extension of the previous inward-looking materiality focus. We have taken this step in anticipation of the reporting requirements that will apply to Alliander from the 2024 annual report. We also involve stakeholder representatives when determining the relevance and impact of various topics.

2023 topics from a double materiality perspective

To arrive at a materiality analysis for 2023 in accordance with the CSRD requirements, we juxtaposed the topics from the 2022 materiality assessment with the topics under the CSRD and also considered the topics examined by peers in our industry in their 2022 annual reports. All topics were then discussed and assessed for materiality. As part of this process, we also evaluated and redetermined the impact of topics with topic owners and specialists at Alliander. In addition to the impact on the environment and stakeholders, the risks and opportunities associated with the topics were identified for the organisation (double materiality). Due to this realignment in anticipation of the CSRD, we see a number of changes compared to the 2022 annual report. To tie in meaningfully with the CSRD themes and facilitate comparison with our sector peers, we have grouped the topics by key topic. The key topics consist of multiple sub-topics that correspond to policies, objectives and indicators. The fifteen most relevant key topics were used as a guide in defining the content of the annual report, and they are covered at length in the stakeholder sections.

We see considerable overlap with the topics that were material in 2022. Grouping the topics in clusters has led to a name change in some cases, but the material topics are similar.

When describing the topics, it is important to consider the impact that occurs elsewhere in the value chain(s). This applies in relation to energy as our core task and to environmental, social/safety and human rights aspects that may arise in the supply chain for materials and services.

Compared to last year’s top fifteen, the sub-topics of Reliability of supply and Completion of work package have been grouped together under On-time supply of capacity and Congestion management. Working together on innovative solutions is no longer a stand-alone topic. The Safe infrastructure and Safe working practices topics have been split and Safe working practices is now a sub-topic under the Being a good employer key topic. Diversity at board level and in the workforce is a new sub-topic under Being a good employer. The topic of Supply chain responsibility has been split into the sub-topics of Labour and human rights in the supply chain and Responsible procurement.

The process in 6 steps

Under the CSRD, we are required to look at the impact Alliander has on its environment and stakeholders as well as the impact the environment has on Alliander (double materiality). In other words, an additional dimension has been added to materiality compared to current guidelines. The approach is a combination of “inside-out” and “outside-in”. The “inside-out” perspective looks at the impact Alliander has on its environment, i.e. the stakeholders. The “outside-in” perspective looks at the (financial) impact the outside world has on Alliander. If a topic is classed as material in at least one of the two perspectives (either inside-out or outside-in), that topic is then considered material to Alliander.

The process involved the following steps:

• Step 1: Identification, review and validation of the list of topics

• Step 2: Interviews with subject matter experts

• Step 3: Assign scores to the topics

• Step 4: Validation of preliminary outcomes by management and discussion with stakeholders

• Step 5: Materiality matrix

• Step 6: Implementation

Step 1: Identification, review and validation of relevant aspects and topics

All possible aspects must be considered in order to determine material topics. Consequently, a list of possible relevant topics was compiled and compared with the 2022 list. The following sources were also considered when compiling this list:

• The material topics presented in Alliander’s 2022 annual report

• A comparison with the topics noted in the sustainability reporting standards (ESRS) and the CSRD, version of November 2022

• A peer review that compared topics mentioned in the 2022 annual reports of Enexis and Stedin

• The 2023 trend report, prepared by Alliander Corporate Strategy

• Alliander’s strategy, in line with the 7 strategic pillars

• Internal documents and analysis of social and other media by Alliander, 2022 media analysis, prepared by Marketing & Communications

• A risk analysis prepared by Alliander (examining both strategic and tactical risks), Alliander risk report dated Q2 2023

This analysis resulted in a global list of about 40 possible topics. All the topics that appeared in the above lists were included therein with a reference to the sustainability reporting standards (ESRS). We then split the global list into 13 clusters.

Step 2: Discussion and review of topics with subject matter experts

Discussions for each cluster were held with subject matter experts. The experts were selected based on experience within Alliander. These subject matter experts are or have been involved in CSR and/or have expertise in relation to ESG topics. In the interviews with subject matter experts we assessed the relevance of the listed topics, the choices and actions Alliander has developed for the specific topics and how Alliander is organised in respect of the specific topics.

The process for determining materiality must meet a number of requirements. This involves determining the impact and the associated opportunities and risks. In doing so, consideration was given to the current and potential impacts that Alliander could have on the economy, the environment and people (including human rights) through the material topics. The factors that need to be established for this purpose are:

• Scale: how serious is the (potential) impact, both negative and positive

• Scope: how widely does the impact manifest itself

• Recoverability: is recovery possible after the negative impact

Next, where possible, the impact is expressed in financial terms, both the impact on the environment caused by Alliander and the financial impact due to the outside-in effect and the probability of the opportunity or risk actually occurring. Once the materiality and the actual and potential impact have been determined, the material topic needs to be assigned a weighting. These topics were covered during the discussions with the subject matter experts in order to give the working group a broad overview of the various topics.

Step 3: Scores

Based on the discussions with the internal subject matter experts, the CSRD working group assigned a score to the topics. For each sub-topic, the impact, risks and opportunities were discussed, after which a score was assigned. The scores were assigned according to the matrix below, resulting in between 3 and 9 points for each sub-topic.

Inside-out impact:
Scale: ‘seriousness’ of the impact → low, medium, high
Scope: ‘size’ of the impact → small, medium, large
Recoverability: how difficult is recovery from the impact → easy, medium difficulty, very difficult

Outside-in impact:
Risk: what risk does Alliander face due to this development
Opportunity: what possibility/business opportunity does the topic open up
We assessed risks and opportunities for the outside-in dimension based on the following aspects:
Probability: what is the probability of the impact → low, medium, high
Financial impact: how large are the (potential) financial losses/costs → small, medium, large
Recoverability regarding the financial impact: effect of the recovery costs and practical difficulty of the recovery process in the case of a negative impact for Alliander → low, medium, high.

In the first instance, we only assigned scores for the inside-out dimension. The outside-in scores were assigned subsequently in a separate meeting.

Following this, the topics were compared with the sustainability reporting standards (ESRS) in order to conduct a gap analysis. For reasons of practical implementation and feasibility, we are still using the comparison with the GRI Universal Standards for the 2023 annual report, as previously prepared in 2022. The summary guides the composition of the information contained in this annual report. Alliander also has company-related indicators in place, which are likewise linked to the GRI information.

To arrive at a lower limit, the list was discussed in the working group. Based on professional judgement, we decided on a lower limit of 5 of the maximum of 9 points to be awarded. A topic is always given a minimum score of 3 points per dimension. The result was then validated by the steering committee and the Management Board and in consultations with stakeholders.

Step 4: Validation

Relevance to stakeholders

The relevance of topics from a stakeholder perspective was addressed separately in a number of interviews with external representatives and presented to the stakeholder panel members charged with giving feedback on the 2023 annual report. While those interviews/that feedback largely confirm the relevance of the material topics, specific reference was sometimes made to additional topics, or specific questions were asked. Regarding the labour market and training, for example. 

The impact analysis provides insight into opportunities and threats for the organisation, as well as into the level of priority that should be assigned to tackling each specific subject. The information was collated to produce a draft materiality matrix.

The outcomes of the impact analysis and the materiality matrix were discussed internally and made available to the Management Board. The list of key topics and sub-topics was discussed and approved by the director with relevant responsibility, the CFO, on behalf of the Management Board. One of the conclusions was that the topics where Alliander has or could have the most impact largely match the most important challenges Alliander is addressing.

Step 5: Link between the topics and the materiality matrix and implementation

The combination of Alliander’s impact on its environment on the Y-axis and the impact that topics can have on Alliander on the X-axis shows the impact of a particular topic on the organisation’s social performance and therefore the priority given to it within the annual report. The materiality matrix thus frames the most material topics for Alliander’s annual report. Alliander groups the results of the materiality analysis into three categories:

Key topics

These are the nine topics in the materiality matrix that stand out in the eyes of stakeholders and which are doubly material because they have an impact on both society and on Alliander. They are covered at length in the annual report.

Sub-topics

These are the topics grouped under a key topic. For example, climate change mitigation and energy are both sub-topics of the Climate key topic.  

Other, potential, topics

These are topics that currently receive a lower priority rating in terms of impact, opportunities and risk determination and from the majority of stakeholders and therefore have a lesser impact for Alliander. It is, however, quite possible that topics can be assigned a greater weighting in the future so we monitor developments and keep tabs on them as necessary. In the case of a number of them, they are nevertheless included in the annual report for legal reasons, or because they need to be included in the annual report due to stakeholder interests, or because they are referred to in the disclosures in the GRI Content Index.

Step 6: Implementation

The materiality of topics as decided by the Management Board provides the basis for the organisation of the contents and for the overall management of the annual report process. Decisions are taken as to how the topics should be elaborated and what needs to be included in the information that is collected. Organisational units prepare the reporting process in conjunction with the responsible departments and agreements are reached on the validation and verification of data. For further disclosures regarding the reporting process, see ‘About this report’ and the GRI Content Index. In 2024, the material topics will be fleshed out based on the provisions of the EU CSRD. The goal for the 2024 annual report is to be CSRD-proof and we will produce the report according to these requirements.