Managing environmental, social and governance (ESG) risks and opportunities has become a key priority for organisations. Customers, investors and other stakeholders increasingly expect businesses to understand and adapt to their evolving operating environments and global trends. Strong ESG practices help minimise negative impacts, enhance business operations and build stronger stakeholder trust. Among the key drivers of ESG considerations is climate change which requires organisations to proactively address climate risks, reduce their carbon footprint and adapt to climate-related regulations. By integrating climate change awareness into their strategies, organisations can build stakeholder trust, unlock new opportunities and contribute to a more sustainable future.
Materiality assessment is vital tool for organisations in addressing ESG challenges, especially in the context of climate change. This structured process involves engaging external stakeholders to pinpoint and prioritise key climate-related risks, allowing companies to align their strategies with the most urgent environmental concerns. By incorporating climate change into materiality assessment, businesses can better understand their potential risk, including regulatory shifts, resource shortages and reputational harm from insufficient climate action. The insights derived from this process not only guide strategic decision-making but also improve communication with stakeholders regarding the organisation’s commitment to sustainability.
What is double materiality?
Double materiality, also referred to as “dual materiality”, expands the scope of traditional materiality by identifying key issues that influence financial stakeholder’s decisions while also considering broader social and environmental dimensions. Unlike the conventional focus on financial performance, double materiality integrates sustainability factors into the reporting process. This approach provides a holistic evaluation of a company’s performance across its entire value chain, emphasising both financial and non-financial impacts. In sustainability reporting, companies must address two interconnected perspectives that is financial materiality which examines the financial implications of sustainability issues and impact materiality which assesses the company’s effects on society and environment.
Adopting a double materiality approach in sustainability reporting provides a comprehensive view of both financial and non-financial impacts, aligning with stakeholder expectations, improving risk management, and aiding CSRD compliance. It guides strategic direction, future-proofs businesses, enhances competitiveness, and supports long-term planning. This approach drives strategic decisions by balancing financial and environmental impacts, as seen in industries like consumer goods and financial services, where sustainable practices boost loyalty, reduce risks, and influence performance. The following examples demonstrate how companies incorporate double materiality into their corporate strategies.
- Ferrexpo, a Swiss-based mining company conducted a double materiality assessment to meet the requirements of the EU CSRD. The assessment highlighted various ESG impacts through stakeholder engagement, helping to shape their strategy, ensure regulatory compliance and gain a strategic edge
- Anthesis carried out a double materiality assessment for Guess to aid their strategic planning in accordance with CSRD requirements. The project involved creating a double materiality metrics and aligning Guess’s sustainability strategy with best practices and relevant reporting standards. Their report was honoured for excellence in sustainability reporting at the Corporate ESG Awards 2023
- BSR supported Assurant in conducting a global double materiality assessment in preparation for their strategy refresh and mandatory disclosures. The assessment helped clarify key topics for sustainability strategy and reporting, strengthening stakeholder relationships and uncovering potential opportunities for future collaboration
- Beyond Bank, though not obligated by CSRD, chose to undertake a double materiality assessment to stay ahead of possible regulatory developments. This forward-thinking approach engaged senior management and stakeholders to assess the interconnections between sustainability topics and enterprise value
How can double materiality help in corporate strategy?
Double materiality offers a comprehensive approach to evaluating a company’s sustainability by assessing both its financial impact and broader effects on society and the environment. It helps businesses identify climate-related risks like regulatory pressure and supply chain disruptions while uncovering opportunities for innovation and competitive advantage through sustainable practices. For instance, the effect of double materiality on Unilever. Unilever’s double materiality assessment highlighted the importance of sourcing sustainable palm oil for environmental preservation, supply chain stability, and consumer demand. This led to a sustainable sourcing strategy that mitigated risks, boosted growth, and solidified its leadership in sustainability.
Double materiality helps organisations align sustainability efforts with the interests of stakeholders such as investors, customers, and communities. By addressing diverse expectations, companies can build trust and drive long-term value. This approach highlights both financial impacts and responsibility toward societal and environmental outcomes, fostering innovation and ensuring sustainability strategies are relevant and effective. A compelling case study highlighting stakeholder alignment through double materiality assessment that involved external engagement with various stakeholders including farmers, consumers and environmental groups. Danone’s double materiality assessment drove initiatives for carbon reduction and regenerative agriculture, enhancing its brand, securing eco-conscious consumer loyalty, and reinforcing its leadership in sustainable food production.
Integrating double materiality into risk management enables companies to thoroughly assess and address ESG risks. This approach provides a deeper understanding of how their operations impact society and the environment, while also considering how external sustainability factors influence financial performance. By adopting this dual perspective, businesses can proactively manage emerging risks like regulatory shifts, reputational damage, and supply chain disruptions, while also seizing opportunities for innovation and sustainable growth Coca-Cola‘s double materiality approach addresses water scarcity, plastic waste, and community engagement, enhancing risk management and driving long-term value through sustainability commitments like water replenishment, recyclable packaging, and local community involvement.
Double materiality helps organisations navigate evolving regulations and societal expectations, ensuring competitiveness in a sustainability-driven market. By aligning initiatives with stakeholder interests, companies build trust and create long-term value. This approach enhances risk management, fosters innovation, and boosts resilience, positioning organisations to adapt to challenges and seize opportunities from sustainable practices. A notable example of how double materiality fosters long-term resilience is that of Assurant. Their double materiality assessment aligned its strategies with stakeholder expectations, addressing key environmental and social challenges, strengthening partnerships, and positioning the company for future growth and resilience in a changing market.
Through double materiality, businesses align sustainability with core strategies, gaining a competitive edge. This approach not only meets regulatory demands but also fosters brand loyalty, operational efficiencies, and stronger financial performance, while managing ESG risks and responding to evolving stakeholder needs. A key illustration for how double materiality drives value and provides competitive advantages is the case of Procter & Gamble. P&G’s double materiality approach, focusing on reducing plastic use and enhancing energy efficiency, has minimised its environmental impact while appealing to eco-conscious consumers, strengthening its market position and providing competitive advantages.
Integrating double materiality into long-term strategy helps companies assess both financial and non-financial factors, identifying risks and opportunities beyond traditional financial analysis. This approach supports informed decision-making, fosters sustainable practices, and enhances resilience. It also positions companies to meet evolving regulatory expectations, gain investor trust, and stand out in competitive markets. A key instance is the case of Nestle, where its commitment to achieving net-zero greenhouse gas emissions by 2050 highlights how double materiality shapes its long-term strategy, balancing ESG impacts. Nestlé’s double materiality approach drives its net-zero goal by 2050, with initiatives like a CHF 3.2 billion investment in regenerative agriculture, renewable energy, and deforestation-free supply chains, positioning it as a sustainability leader while enhancing both environmental and financial performance.
Double materiality enables companies to address the intersection of financial performance and sustainability by evaluating both ESG risks and their broader impacts. It helps businesses align with stakeholder expectations, improve risk management, and adapt to evolving regulations. This holistic approach fosters long-term success, building resilience and competitiveness. Ultimately, it balances profitability with societal contributions, ensuring future readiness.
Bibliography
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