Look both ways: Why dynamic double materiality matters

Sustainability is not just about meeting expectations - it’s about understanding how the world impacts your business and how your business impacts the world. This concept, known as double materiality, is now central to many leading reporting frameworks.

Backward, forward: Learning from the past to shape the future

The term materiality in a sustainability context has its roots in finance, where it helps companies report on past results. However, it would be a missed opportunity to use materiality only for a backward look. Instead, the insights gained should help shape future strategies.

This brings to mind the Dodo Bird’s Caucus race refrain from Disney’s Alice in Wonderland:

"Backward, forward, outward, inward
Bottom to the top,
Never a beginning,
There can never be a stop!"

Materiality assessments traditionally help companies identify the most material issues for reporting by looking backward. The rich information gathered for this purpose can also guide future strategy. By focusing on the most material issues, businesses can define goals, set meaningful KPIs, and proactively address sustainability risks and opportunities. In short, "backward, forward" translates into "report and strategise."

Outward, inward: Engaging stakeholders for a deeper understanding

The phrase "outward, inward – bottom to the top" from the Alice in Wonderland refrain reflects the opportunities materiality presents for involving a range of stakeholders. While the IR Framework for example primarily considers investors, a broader approach adds depth and perspective.

Engaging diverse external stakeholders, including local communities, NGOs, clients, and investors, enriches the assessment and ensures businesses are well-prepared for all reporting requirements. Internal input is equally valuable - from apprentices to the leadership team, all perspectives help create a more comprehensive materiality assessment that helps you develop a strategy that supports you to succeed sustainably.

What is double materiality?

Double materiality means looking at sustainability through two lenses:

1. Impact materiality
   How an organisation affects the environment, society and economy.
2. Financial materiality
   How sustainability issues affect an organisation’s financial performance, risk profile, and long-term value creation.

How different frameworks approach materiality

To understand the growing focus on double materiality, let’s compare how leading sustainability frameworks define and apply it:

While some frameworks, such as GRI, focus more on impact materiality, others, like IFRS prioritise financial materiality. The EU’s CSRD now mandates double materiality, requiring companies to report on both perspectives.

Let’s have a look at some examples

Example 1: Construction and infrastructure

• Impact materiality: If your construction company uses imported materials with a high carbon footprint, this contributes to climate change. Switching to locally sourced, low-carbon alternatives reduces your impact.
• Financial materiality: Imported goods with a high-carbon content may become the focus for specific carbon tariffs, increasing the cost of materials.

Example 2: Agriculture and food production

• Impact materiality: The way food is produced has a major impact on soil health, biodiversity, and emissions. Companies using regenerative farming or investing in methane reduction strategies are reducing their environmental impact.
• Financial materiality: Farming methods that degrade soils lead to increasing application and use of artificial fertilisers, pushing up production costs.

Static vs. dynamic materiality: Why change is needed

Many companies treat materiality assessments as a one-time exercise and update their findings every few years. However, sustainability challenges - climate risks, regulatory shifts, and stakeholder expectations - are evolving constantly. That’s where the phrase “Never a beginning There can never be a stop” from Alice comes in.

To make double materiality dynamic, you need to continuously reassess both financial and impact materiality as circumstances change. This involves:

1. Regular updates – Conduct ongoing materiality assessments, not just periodic reviews, that look at evolving risks, your stakeholder’s concerns and regulatory changes.
2. Stakeholder engagement – Maintain an open dialogue with investors, customers, regulators and communities to keep on top with changing expectations.
3. Scenario analysis – Model future trends, policy changes and climate risks so you can anticipate shifts in what matters to your strategy.
4. Governance – Make dynamic materiality part of your decision-making, so your leadership can act as sustainability and financial risks evolve.

By making double materiality dynamic, your organisations can better navigate uncertainty and drive sustainable long-term value.

How your business will benefit from dynamic double materiality

Future-proof strategy: Dynamic double materiality helps you learn from past impacts and anticipate future sustainability risks and opportunities, shaping more proactive and resilient strategies.

Stronger stakeholder relationships: By involving diverse internal and external stakeholders—such as communities, NGOs, and investors - you can deepen your understanding and build trust.

Enhanced risk management: Regularly updating materiality assessments help you to stay responsive to evolving sustainability issues and regulations and avoid unexpected financial impacts.

Clearer reporting and compliance: Adopting double materiality aligns with leading sustainability frameworks (like the EU’s CSRD), preparing companies for current and emerging reporting requirements.

Want to get started with double materiality, read our Need to Know guide and have a chat with our experts to work out which approach is the right one for your business.