Understanding the importance of double materiality

CRS Trends  »  Sustainable regulations   »   Understanding the importance of double materiality

The current outpour of regulations in the EU, and globally, is setting increasingly ambitious targets for companies in sustainability matters, and it is in this context that double materiality has become a central concern. 

The European Union has, in the last few years, proven itself to be determined to transform the European economy into one that is synonymous with sustainable and responsible business practices. 

For better or for worse, it seems as though the only plausible way to achieve this is by building a strong and fairly demanding regulatory framework around non-financial and sustainability business matters. 

There are plenty of topics to tackle in this regulatory context, but this time around we want to highlight a key concept and element of the many new and upcoming regulatory demands that European (and some non-European) companies need to face sooner than later, and that is double materiality. 

double materiality

What is double materiality?

It is quite clear to us that double materiality is a concept we’ll most likely continue to hear about, so let us begin by understanding what it actually means and implies for companies. But let’s start from the basics, what is materiality?

Traditional materiality is a concept we commonly see in accounting and auditing that tackles financial issues; the latter is about figuring out whether a mistake or something left out of a financial statement is important enough to affect someone in their effort to make an informed decision. 

Double materiality on the other hand goes beyond just financial information in accounting by considering environmental, social, and governance factors as well.

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Double materiality allows companies to recognize and understand that their own impact on the environment and society is material to their financial performance. 

Furthermore, it acknowledges there are risks and opportunities coming from a financial as well as a non financial perspective.

In a nutshell, double materiality requires companies to assess and disclose how sustainability matters affect the company itself, and, on the other hand, how their own operations and activities affect or impact the environment and society. 

double materiality

Double materiality and sustainability reporting

The link between double materiality and sustainability reporting is essential; in fact, there are a growing number of guidelines and standards that require companies to conduct double materiality analyses. 

Reporting standards such as GRI, ISSB or SASB are examples of how present double materiality is in the sustainability sphere today; similarly, the growing regulatory framework of the EU in these matters has also taken double materiality as a primary element of its reporting, including CSRD, SFDR or the latest CSDDD

All in all, double materiality is not only a necessary practice for regulatory or legal reasons, but also for companies to genuinely understand the impact they have on the planet and people, as well as how climatic and social crises can affect their own performance.

Guide to conduct a materiality analysis

Learn why and how to conduct a materiality analysis with.

Why is double materiality so important?

Beyond just compliance and regulatory reasons, double materiality is important in the sense that it is a very valuable to companies and the way in which they understand and communicate sustainability matters. 

Double materiality assessments allow for greater corporate transparency with stakeholders in regards to the company’s impact, while at the same time it grants organizations with a clearer understanding of the risks and opportunities faced, which can easily translate to better and more nuanced risk management. 

Similarly, double materiality is also a great ally for financial matters, as good reporting helps investors get a clear view of the company and its relation to ESG, opening up the opportunity for acquiring more capital and partnerships, or entering new markets. 

double materiality

Engage employees in the ESG strategy

In DoGood, we aim to simplify the complex web of sustainability objectives for companies by offering a platform that translates the high-level ESG (Environmental, Social, Governance) objectives into actionable tasks for every single employee. 

Then, each employee not only knows how to make an impact but also feels empowered to contribute meaningfully to the greater sustainable strategy. 

No more vague directives. No confusion. DoGood automates the process, making it seamless for the workforce to know precisely what steps to take.