OSMA Methodology
Understanding how OSMA works
What is Open Source Materiality Assessment (OSMA)?
It is an innovative AI approach to the ESRS materiality assessment that saves time, effort and resource while meeting the regulatory requirements. OSMA collects all publicly-available conversations from all affected stakeholders – internal, external and industry – machine reads those conversations in the original language against the CSRD (and other) taxonomies, and delivers an analysis ready for the company's preparer to assess the discovered risks and opportunities. The results are exported into the company's current reporting software ready for inclusion in the annual report.
There are three key data sources collected:
- Internal - what the corporate states is material in its latest annual report.
- External - all the stakeholders' conversations in the public domain.
- Industry - the combined stakeholder conversation across the relevant industry
Who are "Affected Stakeholders"?
Engagement with affected stakeholders is essential to the materiality assessment process. Stakeholders include: individuals affected, investors, business partners, trade unions, civil society, NGOs, analysts, academics, employees, suppliers, consumers, customers, end users, local communities, vulnerable people, public authorities (including regulators, supervisors, central banks). [1]
Engaging with all these stakeholders, firstly to discover who they are and if they are relevant, secondly to elicit their views in a structured and timely way is a considerable challenge. The guidance does not mandate a specific way to meet this challenge.
OSMA automates the process of engagement with affected stakeholders. The open source approach captures all the relevant conversation daily from affected stakeholders in the local language of the organisation's main location and in global English. If a stakeholder does not publicly contribute to the relevant conversation, they can be judged as not affected and so irrelevant to the materiality assessment.
Engagement with affected stakeholders … entails seeking input and feedback to understand concerns and evidence about actual and potential impacts of the undertaking on people and the environment. However, the ESRS do not mandate specific behaviour on stakeholder engagement. -Efrag 2024, para 7
What is "Objective Criteria"?
The guidance states that the performance of the materiality assessment must be based on "objective criteria". In other words, the results can be independently verified and that different people measuring the criteria will reach the same results.
OSMA captures all publicly-available conversation, uses the defined ESRS taxonomy, and makes all the underlying data available to the user and assurance provider. This approach meets the "objective criteria" standard required.
The performance of a materiality assessment based on objective criteria is pivotal to sustainability reporting. The undertaking will use judgement when applying the criteria, and the related explanations are expected to provide transparency from the undertaking to the users of the sustainability statement. -Efrag 2024, para 1
Third party Assurance
ESRS requires that the sustainability section of the annual report is assured by a third party. OSMA has been built to be audit-ready with full transparency of the analysis and drill down to the underlying data points.
The guidance does not set a threshold for materiality, that is up to the preparer. The dashboard helps preparers to set a threshold based on stakeholders' sentiment towards the company using absolute and relative comparisons with the company's industry over the reporting period.
OSMA does not use "black box" generative AI to provide summaries/topic analysis for IRO descriptions because these are not able to be audited due to a lack of a clear data trail. Instead, the individual conversations are surfaced. For a single company, the analysis is on a day-by-day basis so it is clear what issues are driving materiality. For a industry, the analysis uses key phrases due to the large volumes of conversations analysed.
The dashboard is updated weekly. When a materiality assessment evolves significantly, dashboard users will be notified by email so that IROs can be revised accordingl
Value add OS Materiality Assessment
In order to maximise the benefits to the organisation of the OSMA, the dashboard also provides a number of analyses of the underlying data. Combining two sets of data provides valuable insights across the organisation.
- Internal + External = Efficacy. Do stakeholders hear the organisation's messages? Use for measuring the value of Marketing, PR, External Affairs budgets
- External + Industry = Strategy. Is the organisation best positioned against its peers? Use for Board reports, Investor Relations, Business Intelligence
- Industry + Internal = Context. How to understand the context in which the organisation is operating? Use for new market entry, product innovation, customer satisfaction metrics
Efficacy
Do stakeholders hear the corporate's messages
Strategy
Whether the corporate is outperforming its peers
Context
Whether the Corporate is an outlier
OSMA
Double materiality assessment using open source intelligence. Triangulated, regulatory aligned, transparent for assurance