In today’s rapidly evolving corporate landscape, the concept of Double Materiality is gaining traction as a critical framework for understanding the interconnectedness of sustainability impact and financial performance. The Double Materiality Assessment examines both the inside-out perspective meaning the organization's impact on people and the environment, and the outside-in perspective meaning the sustainability-related risks and opportunities to an organization. However, traditional strategy teams often remain disengaged from conducting these assessments.
In this blog, we explore one of the reasons behind the disconnect between strategy teams and their contribution to the Double Materiality Assessment. We advocate for a shift where strategy takes co-ownership of the Double Materiality Assessment to fully embrace its potential and to unlock valuable insights.
The disconnect between strategy teams and the Double Materiality Assessment
The Double Materiality Assessment conversation emerges as part of the preparations to report on CSRD, which are often driven by finance and sustainability functions. As a result, in many instances the finance and sustainability teams naturally take a leading role in performing this exercise. The misconception that the assessment is merely a compliance and reporting exercise usually leads to a disconnect between strategy teams and the Double Materiality Assessment.
This disconnect is puzzling, considering that many of the competencies required for performing such a robust assessment — such as financial impact analyses, identifying market trends, traditional SWOT assessments, benchmarking and deploying customer insights—are already well-established competencies within the strategy teams.
From compliance to strategy
The absence of the strategy team’s contribution to the Double Materiality conversation is a pitfall. After all, these teams play a pivotal role in shaping an organization’s direction, goals, and key performance indicators (KPIs). A compliance and reporting view fails to recognize the strategic value of taking ESG matters into account in the commercial strategy to future proof the business model. Rather than a burdensome box to check, the Double Materiality Assessment provides critical insights into an organization’s environmental, social, and governance (ESG) impacts, risks and opportunities. It allows strategy teams to align their objectives with stakeholder expectations and external developments such as emerging social trends and environmental factors.
By ignoring the (stakeholder) insights generated from Double Materiality Assessments, strategy teams risk operating on incomplete insights limiting their ability to adopt the holistic viewpoint needed to craft robust, future-ready strategies. In addition to that, strategic autonomy becomes increasingly important due to resource scarcity and geopolitical developments. Integrating sustainability into strategic decision-making supports organizations to create a resilient organization.
Effects from excluding strategy from the Double Materiality discussion
Ignoring the opportunity to integrate sustainability into strategic decision-making not only risks falling behind in an era where sustainability is becoming increasingly central to corporate strategy, but it also deprives senior decision makers of valuable intelligence that can drive innovation, resilience, and long-term success. Failing to incorporate stakeholder engagement and the Double Materiality Assessment in the process of refinning the corporate strategy, means missing out on identifying and mitigating sustainability risks, capitalizing on emerging market opportunities and differentiating from competitors who remain reactive on sustainability topics.
Recommendations for collaboration: break silos
The effectiveness of a Double Materiality Assessment hinges on the collaborative efforts from ESG experts, the strategy team and other departments like finance, legal and risk management (with senior leader sponsorship). In an ideal scenario, organizations would establish a robust Double Materiality governance structure, led by strategy and sustainability. A structure that breaks silos and fosters close collaboration between the teams that need to be involved. This structure leverages the unique strengths of these functions — combining business knowledge on risks and opportunities from strategy, with insights into sustainability-related impacts from ESG experts. By working together, the teams can formulate a comprehensive view to identify critical material topics that not only align with regulatory requirements but also resonate with stakeholder values and market trends.
With these insights, the strategy team can harness its capabilities to translate the results into valuable and strategic key performance indicators (KPIs) that drive organizational success. This process ensures that sustainability considerations are seamlessly integrated into the broader corporate strategy. Furthermore, this governance model promotes a continuous dialogue with the board, obtaining their input and oversight throughout the Double Materiality Assessment process. By connecting strategy and sustainability, organizations can create a dynamic ecosystem that not only supports compliance but also long-term value creation and resilience in a changing world.
Conclusion: Turning insights into action for strategic advantage
As organizations are navigating the complexities of modern business, the integration of Double Materiality Assessments into strategic frameworks helps organizations to meet regulatory demands and to unlock valuable insights that drive success.
Is your organization ready to rethink its approach and get more valuable insights from the Double Materiality Assessment? Have you considered how aligning strategy with sustainability could enhance your decision-making? Reflect on these questions and consider the benefits that integrating Double Materiality could have on redefining your strategic direction!
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