Double materiality – From buzzword to business strategy

Materiality has traditionally been viewed through a one-dimensional lens, focusing only on issues that could financially impact a company. However, growing global awareness around sustainability has shifted this perspective. Organisations are increasingly adopting a broader, bigger-picture view of materiality – one that also considers the company’s impact on people and the planet through its activities.

This expanded approach, called double materiality, was introduced by the European Union’s (EU) sustainability reporting framework in 2019. It considers both the “outside-in” (how environmental and social issues affect a business) and the “inside-out” (how a business impacts society and the environment) aspects.

Fig 1: Double materiality. The guiding principle for sustainability reporting (Source: GRI)

Why does this matter?
This is not just about doing good – it’s also about staying ahead.

A double materiality assessment allows companies a clearer view of their risks and broader impact. The impact materiality and financial materiality aspects are closely connected – an organisation’s impacts on people and the planet can, over time, have financial implications. To fully understand the business’s risks, both perspectives need to be considered.

Every organisation has stakeholders who have a vested interest in how material issues are handled. Investors, for example, are taking a closer look at sustainability performance – they’re interested in how ESG factors impact a company as well as how the company manages its environmental and social impacts. Similarly, customers, employees, and communities gravitate towards businesses acting with integrity and accountability.

How is a double materiality assessment performed?
Frameworks guide the way

Insights from a double materiality assessment can guide an organisation’s strategy and risk management processes. They can also enhance reporting practices, inform KPIs and target setting, and help align with broader sustainability goals, such as the United Nations’ Sustainable Development Goals.

But what does the process entail? A double materiality assessment involves identifying key sustainability topics relevant to a company’s activities, engaging key stakeholders, and evaluating the company’s impact materiality and financial materiality. These outcomes are prioritised and then integrated into strategy and reporting. While this process can be complex, some frameworks provide useful guidelines.

Global reporting frameworks such as the International Financial Reporting Standards (IFRS), Corporate Sustainability Reporting Directive (CSRD) and the Global Reporting Initiative (GRI) serve as key frameworks in promoting transparency in corporate sustainability and financial reporting practices. These frameworks can be used together in a double materiality assessment process.

International Financial Reporting Standards (IFRS) focus on financial materiality, i.e. what impacts a company’s ability to create financial value. IFRS S2 builds on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations for climate-related disclosures.
Corporate Sustainability Reporting Directive (CSRD) is a mandatory reporting framework in the EU and promotes double materiality, looking at both financial and societal impacts. The EU’s CSRD requires companies to assess and report on both financial and impact materiality.
Global Reporting Initiative (GRI) supports double materiality, primarily impact materiality, and offers a multi-stakeholder approach, helping businesses connect their strategies to the broader societal and environmental context. The GRI, used alongside frameworks like IFRS or the International Sustainability Standards Board (ISSB), helps organisations address both impact and financial aspects of double materiality.

Although a double materiality assessment is not a mandatory reporting requirement in South Africa, it is gaining traction as a best-practice approach driven globally by regulators, businesses and stakeholders.

The strategic shift towards sustainable success

Double materiality isn’t just a passing ESG trend – it’s a shift in mindset. It’s how businesses stay relevant, build resilience, and drive meaningful results. A double materiality assessment helps businesses tackle sector-specific sustainability challenges, prepare for future risks, and meet stakeholder expectations.

If you’re not thinking about these outcomes, you could be overlooking what matters most.

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