Jul 07 2023

Double Materiality Simplified | Why, What and How of Double Materiality?



Double Materiality Simplified | Why, What and How of Double Materiality?

If you're in the sustainability reporting world, you've likely encountered the term "double materiality." It's a concept that's gaining traction, but is often shrouded in jargon and complexity. You're in a sweet spot here – we'll break it down for you in simple terms, so you can feast on a clearer understanding without any additional mental strain.

There's much to brag about double materiality, even though the concept itself may seem like a contradiction at first glance. The sustainability story is riddled with these kinds of contrasts, and double materiality is no exception.

Let's start with the "why." Traditionally, materiality in reporting has focused solely on how environmental, social, and governance (ESG) issues impact a company's financial performance and value – the "outside-in" perspective. Double materiality introduces a second lens: how the company's activities impact the environment and society – the "inside-out" perspective.

Now, for the "what." Double materiality recognizes that a company's impact on the world around it can, in turn, create risks and opportunities that feed back into the company's financial performance and value. It's a two-way street, where the company's impact on the world, and the world's impact on the company, are both material considerations.

And finally, the "how." Implementing double materiality requires a fresh assessment of your material topics. You'll need to identify not only the ESG issues that pose financial risks or opportunities to your business but also the ways in which your business activities contribute to – or detract from – sustainable development.

It's time to get off the single-materiality high horse and embrace this more comprehensive approach. While it may seem like a utopian solution oversold by sustainability evangelists, double materiality is quickly becoming the new normal in reporting.

A muted adoption of double materiality is unlikely, as regulators and stakeholders increasingly demand transparency on both dimensions of materiality. It's not just a sale of the concept – it's a fundamental shift in how we think about and report on sustainability.

So, don't wait for nudges from regulators or investors. Upgrade your reporting practices to align with double materiality, and you'll be well-positioned for the future of sustainability disclosure.

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