Understanding Materiality Will Unlock Corporate Accountability

Why smart companies benefit from a ‘double materiality’ reporting system
Feb 23, 2022 8:00 AM ET
banner image of person at whiteboard with the words, "The materiality madness: why definitions matter"

February 23, 2022 /3BL Media/ - With changes under way in the sustainability reporting landscape, clarity on what the scope of the various initiatives are, as determined by their approach to materiality, is essential if organizations are to understand their reporting obligations.

The latest issue of The GRI PerspectiveThe materiality madness: why definitions matter – demystifies the recent explosion in terminology. It explains the approaches of the GRI Standards (impact materiality), the IFRS’ International Sustainability Standards Board (ISSB) (financial materiality) and the incoming European Sustainability Reporting Standards (double materiality), and how they interconnect.

The paper sets out that, to meet the expectations of stakeholders, companies need to disclose sustainability information that relates to both financial value creation and their impacts on the environment and society. Taken together, these two approaches are the basis for double materiality.

Eelco van der Enden, CEO of GRI, said:

“It stands to reason that investor-focused sustainability reporting through the financial materiality lens alone will not allow for companies to be held accountable for their impacts on the environment and people. To suggest otherwise sows confusion and underlines why we need to be clear about the differences and synergies between the various initiatives; in particular, the approaches to materiality and the audiences they serve.

At GRI, we view the ISSB’s sustainability-related disclosure plans and Europe’s incoming Corporate Sustainability Reporting Directive as complementary rather than competing. Alongside GRI’s widely-adopted standards for sustainability impacts, there are strong opportunities for alignment between all three.

We believe it is in the interests of all stakeholders to move to a two-pillar corporate reporting structure, with financial and sustainability reporting on an equal footing. The basis of this overarching system has to be double materiality. That is the only way to achieve the comparable and effective reporting needed to drive corporate accountability.”

The GRI Perspective is a regular series, launched in January 2022, that dives under the surface of topical themes in the world of sustainability reporting. Issue one, A business case for environment & society, explained the latest changes in the sustainability reporting landscape. Issue two, Towards stakeholder capitalism: how we can get there, explored what moving to a stakeholder-centric model means for corporate transparency.

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 are developed through a multi-stakeholder process and provided as a free public good.