By Elizabeth Arif, Senior Analyst, Hayley MacVicar, Consultant, and Adam Schwarz, Senior Consultant, Sustainability and ESG Reporting
Materiality is a hot topic across all industries right now. No matter where you are in your sustainability journey, a materiality assessment will help you prioritize the sustainability issues and opportunities that are most important to your stakeholders — and that will have the biggest impact on your business.
As sustainability management continues to evolve and mature, there’s a new player in town: double materiality. We are getting more and more questions from our clients on double materiality, so we’re happy to share the low down on:
Read on to learn more about best practices for adapting to today’s sustainability expectations.
There are a lot of definitions for materiality floating around. Although they’re different, the following two definitions have been trusted in the sustainability space for many years given they are linked to credible institutions with proven processes in industry engagement:
These definitions lay out the importance of understanding how external factors such as environmental, social and governance topics affect an organization’s success. What they don’t cover is an organization’s effect and impact on the environment and society.
Bloomberg Businessweek says that double materiality adds the risks a company’s activities pose to the environment and society to those that it potentially faces internally. The diagram below shows the difference between traditional materiality and double materiality, and how looking at both provides a much more complete snapshot of your impact.
Source: RIA Canada
With this in mind, the European Commission has published a definition of materiality that is becoming widely recognized and accepted in the sustainability world. It incorporates both the internal and external impacts of a company, highlighting the trend towards making double materiality the default lens:
“In effect, the [materiality assessment] has a double materiality perspective: The reference to the company’s ‘development, performance [and] position’ indicates financial materiality, the broad sense of affecting the value of the company […]. The reference to ‘impact of [the company’s] activities’ indicates environmental and social materiality. Climate-related information should be reported if it is necessary for an understanding of the external impacts of the company.”
For most organizations, a materiality assessment is a crucial first step to building sustainability strategies or ESG policies. Some organizations complete this exercise to demonstrate to stakeholders that they have considered sustainability. However, materiality is not a “check box” exercise – this mindset can easily lead companies down the greenwashing rabbit hole. Alternatively, when materiality is approached with genuine concern for the stability of your organization and environment, it can have immense impacts on your company’s success.
In fact, materiality assessments can strengthen the position of your company by:
There’s a whole array of reasons why assessing your ESG risks with double materiality is better than assessing with traditional materiality. By choosing double materiality, your organization is considering the environment and society in which it operates, allowing for a 360-degree view of your impact. Double materiality also focuses on “value for the organization, society and the environment” rather than solely financial materiality. This means that you’re enhancing the ability for your organization to contribute to the communities in which you operate – and even global goals, like the UN’s Sustainable Development Goals (SDGs).
Double materiality can also be used as a tool to better understand how your organization can improve its ESG practices and work towards a future of reconciliation with First Nations, Inuit, and Metis peoples. For example, Canada’s Truth and Reconciliation Commission (TRC) contains 94 Calls to Action, with the 92nd Call to Action calling upon the corporate sector to apply the UN’s Declaration on the Rights of Indigenous Peoples’ (UNDRIP) principles, norms, and standards to corporate policy and core operational activities involving Indigenous peoples and their lands and resources.
Stakeholders are increasingly demanding that businesses do more than just make money; they need to have a positive impact on the world. Double materiality reflects this outward-looking view of an organization’s impact. In addition, it is becoming more prevalent as a standard. For example, in June 2022, the EU was successful in pushing for the Corporate Sustainability Reporting Directive to incorporate double materiality.
Applying the lens of double materiality to your materiality assessments will not only allow you to monitor and assess how your organization’s decisions will have an inward impact, but also give you valuable insight into how these decisions will have an outward impact as well. As double materiality increasingly becomes the norm, applying this approach to assess your own ESG issues and impact is a sure-fire way to position your company for success so that you can continue to thrive well into the future.
Elizabeth Arif is a Senior Analyst, Hayley MacVicar is a Consultant, and Adam Schwarz is a Senior Consultant at Delphi. Interested in more information on how your organization can reach its corporate sustainability, net-zero, and ESG goals in the shifting policy landscape? Reach out to Elizabeth at firstname.lastname@example.org, Hayley at email@example.com, or Adam at firstname.lastname@example.org.