Despite the recent uptick in investor and media attention, ‘double materiality’ is not a new concept. Our core team have been leading double materiality assessments for more than a decade, across sectors ranging from mining and energy through to trading and technology. In this article, we set out five lessons we’ve learnt along the way, to help you get more insight and impact from double materiality.

Double materiality is based on the concept that inward risks / opportunities and outward impacts are equally important for determining the relative importance of sustainability issues. At the time of writing, it has gained more traction amongst regulators, standard setters, investors and report issuers in the EU and (to a lesser extent) the UK, than it has in the US. This reflects the divergent historical contexts of their respective accounting regimes (e.g. IFRS vs. GAAP), regulatory frameworks (e.g. CSRD vs. SEC proposals) and voluntary reporting standards (e.g. GRI vs. SASB / ISSB), amongst other factors.      

1: See the bigger (integrated) picture

The application of double materiality can help you focus your sustainability reporting on what matters most. However, the true value of building a more interconnected picture of inward risks / opportunities and outward impacts is that it can guide the development of more integrated approaches to sustainability – and support long-term value creation. In other words, it is a concrete first step towards ‘business sustainability’.

An overly narrow focus on the impact of ESG issues on the ‘bottom-line’ can undermine the identification and management of the often longer-term risks and opportunities likely to emerge as a result of external corporate impacts. Conversely, failing to understand the link between ESG issues and enterprise value can lead to siloed sustainability efforts and result in a lack of buy-in from senior management.

2: Supplement data with real human insight  

There is no substitute for structured, direct engagement with your stakeholders. Whilst we have often supplemented our materiality assessments using web scraping and online surveys, much of the real strategic value has come from ‘old fashioned’ human interaction – allowing for two-way learning and the exploration of previously unidentified issues. It is through these conversations that our clients have built internal consensus around strategic priorities, identified new emerging risks (as well as opportunities) and surfaced previously ‘hidden’ external impacts.  

3: Gather a range of perspectives to test received wisdom

External stakeholder voices are particularly important for building a deeper picture of the ‘outward’ dimension of double materiality. Relevant stakeholders will vary by company and sector, but many of our assessments have included engagement with local communities, civil society, governments, consumers, finance providers and investors, amongst others. Ideally this should not only leverage the company’s existing relationships, but should (to help avoid ‘echo-chambers’) involve the engagement of ‘new’ stakeholders who can offer fresh perspectives and help test received wisdom.  

For the first year, it may be less daunting to undertake internal engagement only. This can also help establish concrete internal consensus before opening up the process to external parties. Nonetheless, the longer-term aim should always be to integrate a broad range of insights and perspectives from outside the organisation.

4: Don’t wait for the regulators – get on the front foot

Despite positive steps in recent years, the reporting landscape remains a long way from full standardisation – with contrasting approaches to materiality being pursued by regulators and standard setters in the EU, the UK and the US.   

Rather than waiting for this debate to be resolved, we recommend adopting a more proactive stance towards double materiality. Companies who kick-start this journey now will be better placed (in terms of reporting processes, mature organisational culture and well-interrogated assessment outcomes) to adapt to mandated, compliance-driven reporting requirements in future.

5: Use the results to drive real change

All of the above elements should be applied as part of a multi-year process. Aside from the upfront value of conducting a double materiality assessment (e.g. in terms of producing more focused and analytical reporting), a well-designed process can help you:

• Verify and enhance your enterprise risk management outcomes and focus your ESG strategy
• Build internal consensus over time, as well as cross-disciplinary buy-in to support more integrated management approaches
• Build constructive relationships with your investors and help them gain a deeper understanding of what the company’s risks, opportunities and impacts really are (i.e. ‘beyond the ESG ratings’)

These outcomes need to be actively pursued to ensure your assessment adds actionable, two-way insight over multiple years, both for you and your stakeholders.

To find out more, get in touch at [email protected].  

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