Double materiality analysis

Double materiality analysis is a comprehensive approach to sustainability reporting that considers both the impact a company has on the environment and how environmental and social factors influence the company's long-term success. This approach acknowledges that businesses not only contribute to sustainability challenges but are also affected by them.

What is double materiality?

Double materiality is based on two main dimensions:

1. Outward Materiality: the company’s impact on the world
This dimension focuses on how a company’s operations, products, and services impact the environment and society. It includes factors such as:

• Greenhouse gas emissions
• Water use and pollution
• Waste generation
• Human rights and labor conditions

2. Inward Materiality: the world’s impact on the company
This dimension considers how environmental and social trends—such as climate change, resource scarcity, or demographic shifts—can affect a company’s business model, profitability, and long-term viability. Examples include:

• Physical climate risks: e.g., extreme weather events
• Regulatory risks: e.g., climate policy changes
• Market risks: e.g., shifts in consumer demand
• Reputational risks: e.g., negative public perception

Why double materiality analysis matters

Double materiality analysis is essential for several reasons:

• Strategic decision-making: Helps companies identify and prioritize the most relevant sustainability issues for their business, enabling more informed strategic decisions.
• Risk and opportunity management: Allows companies to identify and manage risks while taking advantage of opportunities associated with environmental and social issues.
• Transparency and trust: Promotes transparency and accountability by providing stakeholders with comprehensive information on a company’s sustainability performance.
• Access to capital: Investors increasingly consider environmental, social, and governance (ESG) factors when making investment decisions. A robust double materiality analysis can improve access to funding.
• Regulatory compliance: Various regulations and standards—such as the European Union’s Corporate Sustainability Reporting Directive (CSRD)—require companies to report on sustainability impacts using a double materiality approach.

Double materiality analysis and the carbon footprint

Double materiality analysis is vital for managing a company’s carbon footprint holistically. By considering both outward and inward materiality, companies can:

• Identify and reduce greenhouse gas emissions across their value chain
• Assess and mitigate climate-related risks to their operations and profitability
• Seize opportunities arising from the transition to a low-carbon economy
• Communicate their climate performance transparently to stakeholders

Frameworks for double materiality analysis

Several frameworks are available to guide companies in conducting a double materiality analysis, such as:

• Global Reporting Initiative (GRI)
• Sustainability Accounting Standards Board (SASB)
• Task Force on Climate-Related Financial Disclosures (TCFD)

These frameworks offer guidance on how to identify, assess, and report on material sustainability issues—including the carbon footprint.