Embracing Double Materiality: A Holistic Approach to Sustainable Reporting

Double materiality, also known as dual materiality, revolves around two core dimensions: financial materiality and environmental/social materiality. It is a concept in sustainability reporting and accounting that offers a comprehensive approach to assessing an organization's impact. Financial materiality is not new to the corporate world; it involves identifying and disclosing financial information that significantly influences economic decisions. In other words, it focuses on financial information that is material enough to affect the company's financial performance and position. This typically encompasses major financial events such as mergers, acquisitions, and significant changes in revenue or expenses.

On the other hand, environmental and social materiality considers the non-financial impacts of an organization's operations on the environment and society. This dimension delves into crucial aspects like carbon emissions, water usage, labour practices, supply chain sustainability, community engagement, and human rights practices. For example, a manufacturer might determine that its carbon emissions and the supply chain sustainability are material factors for stakeholders. Thus, the company would report on its efforts to reduce carbon emissions by implementing energy efficient practices in its manufacturing process, and ensure ethical labour standards and use of sustainable materials throughout its supply chain.

Integrating double materiality into sustainability reporting allows organizations to paint a more complete picture of their value creation. It acknowledges the broader environmental and social consequences of doing business, alongside its financial implications. This not only allows companies to gain deeper insights into their long-term viability and business strategy, it plays a significant role in decision making for stakeholders as well. As stakeholders such as investors, customers, regulators and employees increasingly seek to align themselves with socially responsible and environmentally conscious companies, embracing double materiality helps organizations clearly demonstrate their commitment to sustainability through transparent and comprehensive sustainability reporting, building trust and credibility, while shaping a company's long term trajectory.

Double materiality also offers valuable risk management benefits. By considering both dimensions, companies are well positioned to identify potential risks related to their financial performance and sustainability practices. It takes a proactive approach to addressing these risks, which not only safeguards an organization's reputation but also helps mitigate adverse impacts on society and the environment. Committing to such a holistic approach also encourages companies to innovate and continuously adopt greener and more socially responsible practices, fostering a culture of continuous improvement for the business, and a more sustainable and equitable environment for society. In this way, embracing double materiality is not just a strategic move – it is a crucial step towards a more sustainable and prosperous future for all.

This article was produced by the team at SPARKD Partners as part of its August Articles - a series of Supply Chain articles published every Tuesday and Thursday for the month of August. Click the button below to read more of our articles.