Materiality in ESG Reporting: What Is Relevant to a Pakistani Business?

An ESG report can contain dozens of indicators and still fail to explain what matters most to the business.

Companies frequently begin by collecting information on energy, emissions, diversity, donations, training, safety, and governance. The resulting report may look comprehensive, but the reader is left without a clear understanding of which issues could materially affect business performance or where the company creates its most significant environmental and social impacts.

Materiality in ESG Reporting is intended to solve this problem. It helps a company determine which sustainability-related risks, opportunities, dependencies, and impacts deserve management attention and meaningful disclosure.

For a Pakistani business, the assessment must be grounded in its industry, geography, business model, value chain, regulatory exposure, financing arrangements, workforce, and stakeholder relationships. A generic materiality matrix copied from an international peer is unlikely to provide that clarity.

Key Takeaways

• A material ESG issue is determined by its relevance to the company and its stakeholders—not by how frequently it appears in other sustainability reports.
• IFRS S1 focuses on sustainability-related risks and opportunities that could affect cash flows, access to finance, or cost of capital.
• Impact materiality considers the company’s significant effects on people, communities, the economy, and the environment.
• Pakistani companies may need different material topics depending on their sector, location, customers, financing, and supply chains.
• A credible assessment should lead to governance decisions, targets, metrics, controls, and resource allocation.

What Does Materiality Mean in ESG Reporting?

In sustainability-related financial reporting, information is material when omitting, misstating, or obscuring it could reasonably be expected to influence the decisions of investors, lenders, and other creditors.

IFRS S1 requires companies to disclose material information about sustainability-related risks and opportunities that could reasonably affect their cash flows, access to finance, or cost of capital over the short, medium, or long term.

This definition does not mean that a company must report every possible ESG topic. It must identify the sustainability matters that could affect its prospects and then determine which information about those matters is material to users of its general-purpose financial reports. The ISSB also clarifies that companies should avoid obscuring material information beneath large volumes of less relevant disclosure.

Materiality should therefore improve focus. It should help management and readers understand:

• Which sustainability issues could affect business performance;
• Where those effects may arise in the value chain;
• How the company is responding;
• What indicators are being monitored; and
• Whether performance is improving or deteriorating.

Why Materiality Is Becoming More Important in Pakistan?

Pakistan’s sustainability-reporting environment is moving towards more structured and decision-useful disclosure.

The Securities and Exchange Commission of Pakistan adopted IFRS S1 and IFRS S2 through a phased implementation programme. The first phase applies to relevant annual reporting periods beginning on or after July 1, 2025, followed by the second phase from July 2026 and the third phase from July 2027. The third phase also extends to specified unlisted, licensed public-interest companies.

SECP has also confirmed that the requirement to obtain assurance over sustainability reporting begins from the second year of reporting for affected companies. This increases the importance of having a documented methodology, reliable source data, clear management judgements, and evidence supporting why particular matters were considered material.

The revised SECP ESG Disclosure Guidelines for Listed Companies were issued in December 2025 and aligned with Pakistan’s developing sustainable-finance and Green Taxonomy framework.

These developments mean materiality can no longer be treated as a design exercise completed by a communications team shortly before publication. It must connect reporting with risk management, strategy, financial planning, internal controls, and board oversight.

A 2026 baseline study of listed companies in Pakistan found that an average of 56% of respondent companies had completed a materiality assessment, but maturity varied substantially across sectors. Reported completion ranged from 100% among respondents in fertilizer, pharmaceutical and healthcare, and technology and communications to 0% among the real-estate respondents in the study. These results reflect the surveyed companies rather than the entire market, but they demonstrate that implementation remains uneven.

Financial, Impact and Double Materiality

The term “materiality” is used differently across sustainability-reporting frameworks. Pakistani companies should understand these distinctions before selecting an approach.

The ISSB approach focuses on information needed by existing and potential investors, lenders, and creditors. Its materiality assessment considers whether sustainability-related information could influence their resource-allocation decisions.

Impact materiality takes an inside-out perspective. It examines how the company’s activities, products, operations, and value chain affect workers, communities, human rights, natural resources, and the environment.

Double materiality brings both perspectives together. A matter can qualify because it affects the company financially, because the company creates a significant external impact, or because both conditions are present.

What Could Be Material to a Pakistani Business?

There is no universal list that applies to every company. Two businesses operating within the same industry may reach different conclusions because of differences in location, production processes, customers, technology, financing, suppliers, and risk exposure.

The following examples illustrate topics that may require assessment.

These are starting points rather than predetermined conclusions. A topic becomes material through analysis of the company’s circumstances, not simply because it appears in an industry list.

IFRS S1 requires companies to refer to and consider the applicability of the SASB Standards when identifying sustainability-related risks and opportunities and the information that may need to be disclosed. SASB’s sector-specific topics can provide a useful starting universe, but a company may conclude that a listed matter is not relevant or that an additional Pakistan-specific issue must be considered.

A Practical Materiality Assessment Process

A credible assessment should move through a defined sequence. It should not begin and end with a stakeholder survey.

1. Clarify the Reporting Objective

The company should first decide what the assessment is intended to support.

An IFRS S1 and IFRS S2 assessment is primarily concerned with sustainability-related financial information for investors, lenders, and creditors. A GRI-based report addresses significant impacts on the economy, environment, and people. A company responding to both investor and stakeholder requirements may apply a double-materiality or combined assessment.

The framework selected changes the questions asked, the stakeholders consulted, and the basis on which topics are prioritised.

2. Understand the Business Model and Value Chain

Materiality begins with understanding how the company creates value and what resources and relationships it depends upon.

Management should examine:

• Principal products and services;
• Operating locations;
• Production processes;
• Workforce composition;
• Critical suppliers;
• Distribution channels;
• Customers and export markets;
• Natural-resource dependencies;
• Financing arrangements; and
• Communities affected by operations.

IFRS S1 considers sustainability-related risks and opportunities arising from a company’s dependencies and impacts across its value chain, including its relationships with stakeholders, society, the economy, and the natural environment.

This step is particularly important in Pakistan, where material issues may arise outside a company’s direct facilities. Labour conditions may sit within outsourced production. Climate exposure may affect agricultural suppliers. Water stress may be location-specific, while export requirements may originate from overseas customers.

3. Develop a Relevant Topic Universe

The company can develop an initial list using several sources:

• IFRS S1 and IFRS S2;
• Applicable SASB industry standards;
• SECP requirements and guidelines;
• Enterprise risk registers;
• Regulatory and legal obligations;
• Customer and lender requests;
• Peer disclosures;
• Stakeholder concerns;
• Internal audit and compliance findings; and
• Sector and location-specific research.

The purpose is to create a sufficiently complete list without assuming that every identified topic must appear in the final report.

4. Assess Financial Significance

Each potential matter should be assessed for how it could affect the company’s prospects. Relevant considerations may include:

• Revenue and market access;
• Production and operating costs;
• Asset damage or impairment;
• Supply interruptions;
• Regulatory penalties;
• Access to finance;
• Cost of capital;
• Insurance availability;
• Litigation or remediation costs;
• Reputation and customer relationships; and
• Business continuity.

Both likelihood and magnitude matter, but financial materiality cannot always be reduced to a fixed monetary threshold.

A low-probability event may be material when its consequences could be severe. A matter may also be material before it appears as a recognised financial statement amount, particularly where it could affect the company over a longer time horizon.

5. Assess Environmental and Social Impacts

Where the company is applying impact or double materiality, it should evaluate the scale and significance of its effects on people and the environment.

The analysis may consider:

• Severity and scale;
• Scope or number of people affected;
• Whether an impact can be reversed;
• Likelihood of potential impacts;
• Effects on vulnerable groups;
• Human-rights implications; and
• Impacts occurring within the value chain.

Stakeholder engagement can strengthen this assessment, but management should not use voting or survey popularity as the sole basis for deciding materiality.

A serious worker-safety risk does not become immaterial because few survey participants selected it. Similarly, a technically complex climate or water risk may be highly material even when external stakeholders have limited information about it.

6. Validate the Results

The preliminary findings should be reviewed by people who understand the company’s strategy, risks, operations, finances, and stakeholder relationships.

This will normally require input from finance, risk, operations, human resources, procurement, legal, compliance, internal audit, investor relations, and sustainability teams.

Senior management should challenge whether the proposed topics represent the company’s actual exposures and impacts. The board or its responsible committee should review the process, key judgements, and resulting priorities.

The purpose of validation is not to negotiate difficult issues out of the report. It is to test whether the assessment is complete, evidence-based, and connected with the company’s decision-making.

7. Connect Material Topics With Management Action

A materiality assessment has limited value when its only output is a colourful matrix.

For each material topic, the company should define:

This is where materiality becomes strategically useful. It helps a company direct limited resources towards the matters that deserve the greatest attention.

Pakistan’s Materiality Readiness Gap

The challenge in Pakistan is not a lack of awareness alone. It is the need to convert growing awareness into consistent methodologies and reliable information.

The SECP–IFC–ACCA baseline study found substantial variation in how respondent companies conduct materiality assessments. Some sectors reported structured processes using stakeholder engagement, risk frameworks, IFRS, GRI, SASB, and double materiality. Others remained at an early or informal stage.

The same study found that 88% of respondent companies identified training and capacity-building as a support need, while 74% identified the need for greater regulatory clarity and 67% sought technical assistance.

This suggests that reporting expectations are developing faster than internal capacity in many organisations.

The appropriate response is not to produce increasingly elaborate reports without strengthening the systems beneath them. Companies need practical capability in risk identification, stakeholder engagement, data ownership, calculation methodologies, internal control, scenario analysis, and board oversight.

Conclusion

Materiality in ESG Reporting is ultimately about disciplined judgement.

A Pakistani business should not report a topic merely because it is popular, easy to measure, or commonly disclosed by international companies. It should determine whether the issue could influence investors and lenders, affect the company’s ability to create value, or represent a significant impact on people and the environment.

The assessment should reflect the company’s own operations, locations, strategy, stakeholders, and value chain. It should also lead to clearer accountability, better data, more focused targets, and stronger management decisions.

ESG Nexus supports Pakistani organisations in interpreting emerging ESG requirements, designing materiality-assessment methodologies, engaging relevant stakeholders, building internal capability, and connecting sustainability priorities with governance and strategic readiness.

A credible materiality process does more than improve the ESG report. It helps the organisation understand which sustainability matters require action before they become financial, operational, regulatory, or stakeholder crises.