Beyond Sustainability Goals: How Double Materiality Drives Financial Performance (and ROI)
For years, corporate sustainability focused on committing to general goals and describing piecemeal actions in support of environmental responsibility. But in today's global market, stakeholders expect that companies will apply a more thoughtful approach to priority setting.
Double materiality is the approach that is required by mandated and voluntary corporate reporting frameworks, specifically: EU’s Corporate Sustainability Reporting Directive (CSRD) and the Global Reporting Initiative (GRI). Double materiality helps company leaders understand how environmental, social, and governance (ESG) actions can address financial and operational risks and uncover business opportunities. By integrating ESG priorities across core business activities, companies can unlock a range of benefits.
What is a Double Materiality Assessment?
Before we dive into the benefits, let's address the "how." A double materiality assessment is the first step in setting a foundation for your ESG strategy. The results of the assessment are your company’s most material ESG issues, based on two-way analysis:
How Your Company Impacts Society & Our Environment, AKA “Impact Materiality”
Assessing how your company's business activities impact people and the environment (e.g., pollution, resource use, labor practices). This way of assessing your company from an impact lens is sometimes visualized as an arrow starting with your company’s operations and supply chain and pointing toward society and our environment.
How Your Company is Affected by Society & Out Environment, AKA “Financial Materiality”
Assessing how environmental and social factors affect your company financially (e.g., climate change regulations, resource scarcity, consumer preferences).
Why is a Double Materiality Assessment Important?
Doing this assessment and describing your company’s approach to the assessment is required for compliance with the upcoming Corporate Sustainability Reporting Directive (CSRD). CSRD mandates sustainability reporting for a wide range of companies and requires companies to report on ESG factors that are “material” – which is determined through a double materiality assessment.
Double Materiality in Action: Driving Financial Performance
So how does double materiality translate into real financial benefits? Here are some ways companies are using it to boost their bottom line:
Higher ROI: A 2021 study by NYU Stern School of Business found that companies with strong sustainability practices have a 10% higher return on equity (ROE) compared to their peers.
Enhanced Resource Efficiency and Cost Savings: A 2022 report by Accenture found that companies that prioritize resource efficiency can achieve up to 30% cost savings in their operations.
Real-World Examples: Sustainability Meets Profitability
Patagonia: Patagonia continues to be a leader in sustainable apparel production. They prioritize recycled materials (aiming for 100% by 2025!), encourage garment repair through their Worn Wear program, and have a robust take-back program for used gear. These initiatives not only reduce environmental impact and conserve resources, but create a strong brand loyalty with consumers as they are positioned as a company doing good. According to a company representative from Time Magazine, Patagonia’s sales have quadrupled in the last decade to hit more than $1 billion annually.
Unilever: Unilever's commitment to sustainable sourcing practices highlighted in their 2023 Sustainability Report reinforces the financial benefits of their sustainability efforts. The report states that their Unilever Sustainable Living Brands (USLP) grew 6.1% in 2023, outperforming the overall market. This demonstrates that consumers are increasingly seeking out sustainable products, and companies that prioritize sustainability can benefit financially.
Competitive Advantage
Double materiality isn't just about cost savings; it's about attracting and retaining talent who value companies that align with their values. A 2023 survey by Cone Communications found that 83% of global consumers are willing to switch brands based on their social and environmental commitment.
Double materiality is not just the future of sustainability reporting, it's the future of smart business. By embracing ESG factors as material to financial performance, companies can unlock a range of benefits, from cost reduction to improved brand reputation and access to capital. It's a win-win for the environment, stakeholders, and the bottom line.
Uplift Can Help
Ready to get started?
By integrating double materiality into your strategy and conducting a thorough assessment, you can unlock the true potential of sustainability and drive long-term financial success, all while ensuring compliance with the CSRD. Uplift can help you navigate the process. Contact us today to learn more about our double materiality assessment services.
The EU’s Newest Sustainability Directive Guidebook
The Corporate Sustainability Due Diligence Directive (CSDDD) and revised Packaging and Packaging Waste Regulation (PPWR) bring significant changes for businesses operating in the EU or those with EU-based suppliers. These regulations aim to minimize environmental and human impacts and promote responsible sourcing throughout your supply chain.
Click here to download our Guidebook.
The Uplift Agency
Uplift builds strategies, programs, and communication campaigns that advance ESG in workplaces, supply chains and communities.
We know how to navigate the road ahead because we’ve already been down it – 90 percent of our team has led environmental or social programs in corporations or nonprofits. Because ESG is all we do, our services are more comprehensive and integrated than most firms.
