Double Materiality and Why It's Important for ESG Reporting

Double materiality within ESG reporting is becoming increasingly important for organisations - particularly with the introduction of new regulations such as the CSRD. Understanding and applying double materiality is essential for companies to meet the evolving demands of ESG reporting.

What Is Double Materiality?

Double materiality is a reporting framework that requires companies to assess and disclose sustainability issues from two perspectives:

Financial Materiality

This looks at how environmental, social, and governance (ESG) factors impact the company's financial performance and position, such as how climate change affects regulatory risks and operational costs and processes.

Impact Materiality

Impact materiality looks at how the company's operations, products, and services impact the environment and society. This includes measuring carbon emissions, biodiversity loss, social welfare, labour practices, and more.

This dual approach ensures that companies consider thwe impacts their activities have on sustainability as well as the impacts ESG issues have on them.

Why Is Double Materiality Important?

Meeting Evolving Regulatory Demands

New regulations, such as the CSRD, are placing greater emphasis on double materiality.

Under the CSRD, companies must evaluate ESG risks that could financially impact their operations as well as disclose how their activities impact the environment and society.

Stakeholder and Investor Expectations

Investors, customers, employees, and regulators are increasingly demanding greater transparency and accountability when it comes to sustainability. Double materiality aligns with these expectations by providing a more holistic view of a company's ESG performance.

Future-proofing

Double materiality isn't just about compliance - it’s about building a more sustainable business. Through double materiality, companies can identify risks and opportunities. This forward-looking approach enables businesses to:

• Identify emerging risks such as climate change or human rights issues.
• Enable positive change such as through improving energy efficiency.
• Align business strategy with long-term sustainability goals.

Implementing Double Materiality in ESG Reporting

High-quality data is critical for both financial and impact materiality reporting. Investing in software which collects, manages, and analyses ESG data all in one place to create audit-ready reports is essential for ensuring accuracy and streamlining the workflow.

It’s also important to collaborate across departments - such as finance, sustainability, and legal - in order to integrate double materiality into business operations.

The neoeco platform is an all-in-one, end-to-end ESG reporting solution that allows cross-functional use across teams and departments to meet all your regulatory requirements.

View a quick virtual demo or book a full demo to find out more.