Sustainability reporting is evolving rapidly, yet one concept continues to stand out as a cornerstone of high-quality disclosure: double materiality. As global standard-setters and jurisdictions align around this approach, it’s clear that double materiality is not just a European trend but a global imperative. Let’s dive into why this matters and what it means for the future of sustainability reporting.
What is Double Materiality?
Double materiality is a framework that requires companies to assess and report on two key dimensions:
Impact Materiality: How a company’s operations affect the environment, society, and stakeholders.
Financial Materiality: How sustainability-related risks and opportunities impact the company’s financial performance.
This dual lens ensures a comprehensive view of a company’s sustainability performance, balancing stakeholder interests with financial realities.
The Debate: Double vs. Single Materiality
Recently, rumors have swirled that the EU’s upcoming Omnibus package might dilute the Corporate Sustainability Reporting Directive (CSRD) by shifting from double to single (financial) materiality. However, global leaders and standard setters pushed back, arguing that abandoning double materiality would be a step backward.
Emmanuel Faber, Chair of the International Sustainability Standards Board (ISSB), emphasized that there is “no reason to abandon double materiality.” He prefers the term “multi-stakeholder reporting,” which reflects the diverse dialogues and perspectives involved in sustainability reporting.
Faber highlighted that over 35 jurisdictions worldwide have committed to adopting ISSB Standards, with many strategically collaborating with the Global Reporting Initiative (GRI) to integrate multi-stakeholder reporting. This partnership allows companies to assess both their impacts (GRI) and financial risks and opportunities (ISSB) seamlessly.
A Global Movement Toward Double Materiality
The momentum behind double materiality is undeniable, and its adoption is accelerating globally. According to the S&P Global Corporate Sustainability Assessment (CSA) 2024, 48% of assessed companies worldwide now base their sustainability reporting on the principle of double materiality. This growing adoption underscores its importance as a best practice for corporate transparency and accountability.
Key insights from the CSA reveal how companies are operationalizing double materiality:
- 67% of companies publicly disclose their materiality determination process.
- Of those, 78% involve external stakeholders in the process, recognizing the critical role of diverse perspectives in identifying material issues.
- 70% use a materiality matrix to prioritize and visualize their sustainability topics.
- 45% secure board or management endorsement for their material issues, highlighting moderate leadership buy-in.
- However, only 15% currently verify their materiality process through third-party assurance, a practice likely to increase due to CSRD’s assurance requirements.
These trends reflect a broader shift toward transparency, stakeholder engagement, and accountability in sustainability reporting. Companies are increasingly recognizing that double materiality is not just a compliance exercise but a strategic tool for understanding risks, opportunities, and impacts.
Why Double Materiality Matters
Last month, GRI urged the EU to maintain double materiality as the foundation of the CSRD, citing its ability to:
- Drive high-quality sustainability reporting.
- Strengthen Europe’s competitiveness in the global market.
- Support the European Green Deal by enabling companies to better navigate risks and deliver on sustainability goals.
When on 26 February the European Commissions released its Omnibus proposal, it became clear that the efforts to highlight the importance of double materiality paid off. Double materiality remains at the core of the CSRD.
What’s more, the rest of the world (those outside the EU) continue to steadily recognise the importance of double materiality and are using the CSRD DMA process in combination with the GRI+ISSB standards as their solution.
What Should Companies Do Next?
For businesses looking to stay ahead in this evolving landscape, here are key actions to consider:
- Adopt Double Materiality Fully: Whether through CSRD or a GRI+ISSB approach, embrace the dual lens of impact and financial materiality.
- Disclose the Materiality Process: Provide granular details about how material issues are identified, prioritized, and validated.
- Enhance Stakeholder Engagement: Involve a diverse range of stakeholders, including marginalized or underrepresented groups, to ensure a comprehensive understanding of material issues.
- Strengthen Governance: Secure leadership buy-in and board endorsement for material topics to align sustainability efforts with strategic goals.
- Integrate with Risk Management: Link materiality processes with enterprise risk management (ERM) to create a holistic view of risks and opportunities.
- Invest in Tools and Verification: Use advanced tools to monitor material issues continuously and consider third-party verification to enhance credibility.
Double materiality is more than a reporting requirement—it’s a strategic tool for building trust, managing risks, and driving sustainable growth. Both the EU and the rest of the world are embracing double materiality as the gold standard for sustainability reporting.
As businesses and regulators navigate this evolving landscape, one thing is clear: double materiality is here to stay.
