Why Double-Materiality Is Crucial for Reporting Organizational Impacts

A white paper commissioned by GRI investigates the application of materiality in sustainability reporting – highlighting why disclosing impacts that go beyond those that are financially material benefits organizations while supporting sustainable development.

The paper - The double-materiality concept: application and issues – was produced by a team led by Professor Carol Adams of Durham University Business School (UK). Drawing on academic research, it assesses the challenges, opportunities and relevance of applying double-materiality in sustainability reporting.

Key findings in the paper include:

• The identification of financially materiality issues are incomplete if companies do not first assess their impacts on sustainable development
• Reporting material sustainable development issues can enhance financial performance, improve stakeholder engagement and enable more robust disclosure
• Focusing on the impacts of organizations on people and planet, rather than financial materiality, increases engagement with the Sustainable Development Goals

Double-materiality is central to the European Commission’s proposed Corporate Sustainability Reporting Directive (CSRD), while it also closely aligns with the materiality approach in the GRI Standards. This paper seeks to inform the debate around how this concept drives sustainability and supports better decision-making by investors and other stakeholders.

Professor Carol Adams said:

“Accountability for the impacts of an organization on society and the environment is critical in achieving sustainable development. That is why rigour in the approach to identifying material impacts, and their governance oversight, is required for sustainability reporting that meets the needs of all audiences.

This research concludes that robust reporting of sustainability impacts is necessary for companies to determine risks and opportunities. Despite this reality, many organizations tend to prioritize financial materiality, which is not only detrimental for sustainable development but, ultimately, also to their bottom line.”

Peter Paul van de Wijs, GRI Chief External Affairs Officer, said:

“GRI is committed to informing and leading the debate on how transparency on organizational impacts, as enabled by reporting, can contribute to sustainable development. We are therefore grateful to Professor Adams and her team for this insightful contribution.

As the European Commission seeks a sustainability disclosure solution that has double-materiality as the cornerstone, in which GRI is actively engaged, the time is right to assess the benefits of the concept. This paper provides the academic grounding for why we need a corporate reporting system with sustainability reporting on an equal footing with strengthened financial reporting.”

The white paper is an invited contribution that was commissioned by GRI. It was independently produced by the report authors – Carol Adams, Abdullah Alhamood, Xinwu He, Jie Tian, Le Wang, and Yi Wang.

On 21 April, GRI welcomed the proposed EU CSRD, which confirmed the adoption of double-materiality – reporting on both sustainability factors affecting the company (financial materiality) and how the company impacts on society and the environment (outward materiality).

The update to the GRI Universal Standards (to be released later this year) makes clear that understanding impacts on the economy, the environment and people is necessary in order to identify financially material risks and opportunities.

Global Reporting Initiative (GRI) is the independent, international organization that helps businesses and other organizations take responsibility for their impacts, by providing the global common language to report those impacts – the GRI Standards.