Double Materiality Is More than a Matrix

Materiality has evolved significantly in recent years, shaped not only by shifts in global sustainability standards but also by a growing recognition that companies should focus on what matters most to them.

While impact materiality can be effective in driving accountability and providing stakeholder insights, it does not, on its own, help organizations distinguish which issues should be integrated into enterprise risk management (ERM), command board and executive attention, or inform strategic trade-offs, as it is inherently outward-looking.

As a result, organizations are increasingly seeking to prioritize the issues that reflect both their most significant external impacts and the factors most likely to influence long-term value creation and business success. By uncovering decision-useful information, a double materiality assessment (DMA) enables a more strategic and focused approach. One that is less about identifying topics and more about acting as a connecting mechanism – linking ESG topics to ERM, informing strategic decision making and providing a credible foundation for external communications. In other words, a DMA is more than a reporting requirement – its outcomes can improve strategic planning, enhance how companies make critical decisions and strengthen their connections to stakeholders.

Why does double materiality matter?

At its core, double materiality asks two questions:

• External impact: How does the organization impact people (e.g., employees, communities, customers), the environment and the economy?
• Financial impact: How do sustainability issues (e.g., changing expectations, depletion of natural resources, emerging regulations, climate change) affect the organization’s financial performance, position and future prospects?

By answering these questions, organizations can shift away from a broad and sometimes unclear list of ESG topics toward identifying specific IROs that are significant to their stakeholders and the business.

For instance, a manufacturing company located on the banks of a river could affect water quality and, consequently, the community’s access to the shared resource if the discharged water is not treated. This impacts the environment and local communities. The company may also face the risk of fines if the quality of discharged water falls below regulatory limits.

Identifying impacts, risks and opportunities (IROs) helps businesses better understand how their products, services and activities affect the world, and how critical issues may impact an organization’s ability to create value.

In 2025, 31% of companies in our research sample disclosed IROs in their sustainability reports, indicating a shift towards more transparency and demonstrating how business decisions are grounded in these findings, rather than in what they perceive to be the “right thing to do.”

Broadening the risk universe

Determining whether a risk is financially material requires evaluating criteria such as likelihood, magnitude and time horizon. By leveraging criteria already familiar to an organization’s risk management function, a DMA enables deeper integration of sustainability-related risks into the company’s risk register.

Given that many sustainability risks, such as climate transition and workforce availability, tend to materialize over longer time horizons than traditional financial or operational risks, a key benefit of a DMA is its ability to strengthen ERM. This provides boards with a clearer line of sight into the organization’s financial resilience in relation to critical and emerging risks.

Shifting from a reporting to a strategic mindset

Oftentimes, materiality assessments are conducted during the reporting cycle, after strategic decisions have already been made, in the hope that the outcomes don’t significantly “rock the boat.” However, this is often not the case, and in reality, sustainability initiatives usually compete (at least on some level) with other business priorities.

To build a strong business case and drive meaningful progress in addressing what matters most to the organization, a DMA should be undertaken shortly after the release of a report and before the development of the strategic plan. This timing helps secure buy-in from teams and leaders across the organization and supports the development of time-bound action plans by identifying and prioritizing:

• Facets of the business and value chain that are most exposed to external change
• Business activities that could result in regulatory, market or reputational impacts
• Opportunities for investment, innovation or new product/service offerings

For instance, topics with high external impacts and potentially significant financial effects within one to three years should command greater leadership attention than longer-term issues of lower significance. This insight enables leadership to set goals, prioritize actions and allocate capital toward initiatives that mitigate risks or capture emerging market opportunities.

Building a foundation for authentic communications

Until quite recently, material topics have been presented in a two-axis matrix, with colour-coded dots and priority levels to quantify relative importance and/or impact. As materiality assessments have become more rigorous and complex, organizations have had to rethink how to communicate what matters most.

Our recent sustainability Insights research indicates that as more companies (69%, up from 60% in 2024) conduct DMAs, sustainability leaders are moving away from the traditional matrix to more effectively communicate their priority IROs.

DMAs support more credible, decision-useful disclosures, instilling confidence and helping address growing concerns around greenwashing by:

• Aligning key messaging to what’s material across different corporate publications and channels (e.g., sustainability reports, investor decks, website, social media)
• Reducing the risk of misrepresenting current and potential impacts by identifying affected groups and performance metrics that can be managed and disclosed
• Allowing for clear and transparent communication of IROs internally and externally, providing context for the organization’s business decisions

Connecting the dots by breaking silos

In some organizations, sustainability is still a siloed undertaking. Through the many materiality assessments we’ve conducted, we believe the greatest strength lies in bringing together an eclectic yet essential mix of subject-matter experts, executives, and board members – who can evaluate IROs, set goals, develop action plans and shift culture.

The net effect: a shared understanding and collaborative approach to identifying and addressing IROs, securing leadership buy-in, enabling authentic communication and empowering teams to improve what is measured, managed and reported.

Discover more insights on sustainability reporting and communications.