Sustainability

MATERIALITY ASSESSMENT

In anticipation of the implementation of the European Corporate Sustainability Reporting Directive (CSRD) and in accordance with guidance from the European Financial Reporting Advisory Group (EFRAG), we have started the process of updating our materiality assessment. This will align with the double materiality standard and ensure compliance with the European Sustainability Reporting Standards (ESRS) disclosure requirements.

The double materiality approach facilitates the inclusion of sustainability issues from two perspectives: financial materiality, which addresses sustainability-related issues that impact company value such as profitability, cash flow and development, and impact materiality, which includes a company’s impacts on the environment and society, such as carbon emissions, workforce diversity and human rights.

Mercer completed materiality assessments in 2021 and 2022, and they provide a solid foundation for achieving CSRD compliance. In 2023, we developed the following three-step process to outline how Mercer will conduct a double materiality assessment in line with the CSRD:

1. Understand and Identify Relevant Issues
The first step in analyzing materiality is to take stock of the business context and map out the value chain across direct, upstream and downstream operations. From there, it is essential to identify all key stakeholders — including those who could be affected by Mercer’s value chain activities — as well as those with a potential interest in Mercer’s sustainability-related information. This two-part step allows us to identify a broad range of sustainability issues that could be significant for Mercer and our stakeholders, minimizes the risk of overlooking any emerging issues and ensures that we conduct a thorough and credible analysis. We plan to use our 2022 Materiality Assessment as a starting point. The issues we considered for that analysis were identified through internal and external stakeholder engagement activities, which explored the nature of our company, value chain, stakeholder map and impacted audiences. We also consulted external sources — including industry-level sustainability reporting standards such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), ESG rating criteria, benchmarks and the UN’s Sustainable Development Goals (SDGs).

2. Define and Assess Impacts, Risks and Opportunities (IROs)
The second step is to assess the relevant issues from two perspectives: impacts on society and the environment (impact materiality), and impacts on company value (financial materiality). From an impact materiality perspective, we consider positive and negative impacts across the value chain, including how they may change over the short, medium and long term. For financial materiality, we consider opportunities and risks — both present and future — based on business dependencies across the value chain, and examine how they may change over time.

3. Determine Material IROs and ESRS Mapping
The third step is to look at the detailed list of IROs that emerged from the previous step. The IROs can be weighted to determine their materiality by using a defined scoring mechanism and threshold. Throughout this multi-part step, we integrate stakeholder considerations to validate the IROs and their materiality scoring; we also take the IROs determined as material and map them against the sustainability matters defined by the ESRS. Finally, we review and validate the results of the assessment with internal subject matter experts and key business function leaders, such as the Sustainability and Enterprise Risk Management team. During this step we aim to produce a double materiality matrix — based on the impacts on Mercer’s value and the impacts on society and the environment — with a global perspective. In the matrix described above, we have revised the results of Mercer’s 2022 Materiality Assessment (with a double materiality lens) through stakeholder engagement. In 2024, we plan to use this approach to conduct a full double materiality assessment and to disclose key sustainability-related information on each issue, in line with the ESRS requirements.