External Focus: Single materiality is a business-centric approach to sustainability reporting, primarily focused on the impacts of a company's activities on its financial performance. It considers the external factors that directly affect the company, such as regulatory compliance, reputation risks, and financial indicators.
Traditional Approach: Historically, many companies have followed a single materiality approach, which entails reporting on their financial performance and, to some extent, their social and environmental impacts that directly affect financial performance (e.g., regulatory fines or reputational risks).
Dual Focus: Double materiality, on the other hand, takes a more comprehensive perspective, considering both external and internal materiality. It involves assessing not only how a company's activities affect its financial performance but also how those activities impact the external environment, including broader societal and environmental issues.
Expanding Scope: In this approach, a company doesn't just look at what environmental or social issues are material to its own financial performance but also how its operations may impact the broader world. This includes considering broader sustainability and ethical issues that stakeholders, such as investors, customers, and the public, care about.
The shift towards double materiality reflects a more comprehensive and forward-thinking approach to sustainability reporting. It acknowledges that companies can have a significant impact on the world, and this impact can, in turn, affect the company's performance and reputation. Therefore, a more holistic perspective that considers both external and internal materiality is increasingly important for businesses seeking to address sustainability challenges and meet the expectations of various stakeholders.
To effectively incorporate double materiality into your sustainability efforts (e.g. for CSRD), you'll need to assess how your business activities relate to both external sustainability issues (e.g., climate change, social responsibility) and how these issues, in turn, affect your company's long-term viability and competitiveness. This approach helps companies better manage risks and seize opportunities in the evolving landscape of sustainable business practices.