What is Double Materiality?
Double materiality refers to the practice of understanding your business with respect to its relationship to our planet’s climate.
“Materiality” is a concept borrowed from financial accounting. An item is deemed “material” if it could be said to have an impact on how investors view your company.
The “double” in double materiality refers to the practice of looking at sustainability from two different perspectives.
“Double materiality” is a phrase that is most often used within the larger phrase “double materiality assessment”.
A double materiality assessment is a study that looks at your business and the climate from two different perspectives:
- How sustainability and the climate could impact your business (AKA “Financial Materiality”)
- How your business impacts climate and sustainability (AKA “Impact Materiality”)
In this way, a double materiality assessment is like putting different items in different buckets – though everything in these buckets has something to do with the environment and sustainability.
This article focuses on double materiality in manufacturing. For a more comprehensive view, see our Complete Guide to Sustainability and Carbon Reporting in Manufacturing.
Financial Materiality, AKA “Outside-in Perspective”
Assessing the financial materiality of sustainability factors involves looking at the ways in which the climate could impact your business – especially as the climate continues to change.
Since this perspective involves looking at the climate’s impact on your business operations, it is also referred to as the “outside-in” perspective.
In a double materiality assessment, a company attempts to look at all the ways that a volatile and unpredictable climate could impact its business. The assessors list out all these factors and attempt to estimate both the probability of different scenarios coming to fruition, and the potential financial impact of those scenarios.
Within the field of sustainability the term “Financial Materiality” refers to climate elements that can pose a risk to your business and impact its financial performance. Examples of “Financially material” elements could include flash floods, rising temperatures, or volatility in raw materials costs due to climate change.
Impact Materiality, AKA “Inside-Out Perspective”
The second part of the double materiality assessment involves looking at your business and modeling the impact that your operations and value chain could have on our planet’s climate. This is referred to as the “impact materiality” portion of the assessment. It is also referred to as the “Inside-out” perspective.
“Impact Materiality” refers to sources of environmental impact from your business’s operations. Sources of Impact Materiality can include direct carbon emissions from your operation’s machines, emissions of your suppliers, or the environmental impact of disposing of your manufactured goods.
Why is Double Materiality Important?
As we move towards a more sustainable future, companies will increasingly consider both financial and environmental impacts when making strategic decisions. To make strategic decisions, executives and their teams need to understand the potential environmental impacts. This is why many companies are now embarking on efforts to develop double materiality assessments for sustainability.
Companies that are looking to begin their journey toward sustainability often see a double materiality assessment as the first step. Developing a double materiality assessment lays the foundations for what eventually becomes a company’s overall sustainability report. Going through the process of a double materiality assessment helps companies identify lists of “material” items that need to be tracked & reported on.
Companies that do not perform a double materiality assessment face many risks. For one – if you do not perform a double materiality assessment, unforeseen environmental events put your business at a greater risk. Without the assessment, climate developments may arrive as surprises – leaving you less time to prepare appropriate responses.
Secondly, failing to perform a double materiality assessment leaves your own climate impacts in the dark. If you do not have a full understanding of the mechanics of environmental impacts, then you risk wasting time focusing in the wrong areas as you seek to reduce climate impact.
How should I go about Performing a Double Materiality Assessment?
Manufacturers looking to develop a double materiality assessment generally have two options: One, develop the assessment yourself, or two, get help from sustainability experts.
Developing a Double Materiality Assessment – Doing it Yourself
There are substantial downstream benefits to developing a double materiality assessment internally, as opposed to hiring an outside consultant.
Eventually, your organisation will be tasked with tracking and reporting on ESG performance, including carbon emissions, on a regular basis. Developing the assessment internally will help you identify the people, teams, and the processes that require tracking for ESG reporting including on carbon emissions. The work you do in a double materiality assessment lays the foundation you will tread going forward, as you organise yourself for regular ESG management and reporting.
Many companies are developing their own internal ESG or “sustainability” teams. The sustainability team would be tasked with acting as the central resource for tracking & reporting on all things related to sustainability, as well as identifying strategies for reducing carbon footprint.
If your company has a sustainability team, then they would be the ones to carry out a double-impact assessment. The sustainability team would interface with other teams – namely finance, strategy, accounting, health & safety, production, procurement etc. – to proactively gather the inputs required for a double materiality assessment.
Companies that do not have a sustainability team might look to the financial accounting department to lead the effort. Financial accounting personalities are already familiar with reporting compliance procedures and would understand the financial materiality side of the equation well.
Developing a Double Materiality Assessment – Working with Sustainability Expert
If you do not feel you have the resources or bandwidth to perform the assessment in-house, you can hire a team of sustainability experts.
The consultants would meet with all the personalities and teams listed above, but would bring a systematic approach. A sustainability expert would still interface with all of the teams listed above, but would bring vast experience. The sustainability expert’s experience would save time of the different teams – finance, risk, procurement, production, and so forth. Further, it’s likely that the outside consultant would be able to produce a deeper, more accurate report in less time.
A side benefit of working with a sustainability expert is that all personalities that work with the consultant would come away with learnings around best practices in sustainability reporting. Each team member would develop a greater understanding of their department’s role in sustainability reporting. Ultimately, working with a sustainability expert – especially in the early parts of a sustainability journey – can put you on a path towards higher quality outcomes.
Contact Mavarick today to learn how we can help you with a double materiality assessment.
