Enterprise leaders are recognizing the need to examine business activities more holistically as sustainability regulations evolve. Double materiality, driven by emerging regulations, gauges a company’s overall impact on environmental, social, and governance issues.

Double materiality relies on a two-sided lens to see how sustainability initiatives affect the company but also how the organization impacts the larger world. It examines financial materiality (how ESG components impact financial performance) and impact materiality (how the company impacts the environment and society).

The reporting process may require a double materiality assessment, which drives fundamental change by collecting additional data, new types of data, and better-quality data. This may require new tools, technologies, revamped KPIs, and third-party validation.

Developing a strategy to manage double materiality is critical, as it affects all key stakeholders and reaches into all corners of the organization. A framework must revolve around in-depth assessment of impacts, risks, and opportunities, defining sustainability factors, assessing impacts, understanding financial opportunities and risks, drawing up the materiality overview, and identifying strategic implications.

Implementing double materiality can improve forecasting, trim costs, improve sourcing, reduce risk, improve decision-making, and unlock innovation and value creation. It can create connections between finance, risk, operations, and strategy.