To address the climate crisis and other issues such as biodiversity loss, water scarcity, deforestation, inequalities, and human rights, transformative change is necessary across the corporate sector, investment sector, and society as a whole. To effectively address these interconnected social and environmental challenges, it is necessary and inevitable to implement new legal requirements that create a level playing field. This is the purpose of double materiality
The concept of ‘double-materiality’ is new and was first formally proposed by the European Commission in 2019.
Double materiality is a two-pronged approach to reporting that considers not only the financial risks and business value impacts of an organisation's ESG performance (an outside-in view), but also the environmental and social impacts of the organisation's operations on the world (an inside-out perspective).
☝🏼 For example, when considering the risks and impacts of climate change caused by greenhouse gas emissions, the business risk refers to how climate change may impact or disrupt the organization's operations and performance. The impact view, on the other hand, relates to how the organization is contributing to climate change through its own carbon footprint.
Double materiality encourages more in-depth and interactive communication with internal and external stakeholders to better understand their various needs, concerns, and interests. It emphasizes the importance of sustainable development and value creation, and promotes corporate transparency by identifying risks and opportunities.