Materiality: the ESG measurements that are relevant and important to your company. This goes beyond government regulations and looks at the things that are risks and opportunities for a company.
Double materiality: Also called dual materiality. A company must consider relevant and important data for financial and societal issues.
Every ESG framework measures dozens of data points. So many, in fact, it can feel overwhelming. The good news is: you don’t need to measure all of them. But how will you know which ones to choose? Basically, you need to narrow it down to the data points that will help your company achieve its ESG goals. That’s where materiality comes in.
If data is material, it is both relevant and important. Relevant because it describes how your company is doing business. And important because it influences the risks and opportunities facing your company. Choosing to omit or ignore material data could mean you miss fantastic opportunities or take significant risks.
Materiality depends on context. What is material to one company may not be material to another–even if they are in the same industry. For example, take two food and beverage manufacturers: Kraft-Heinz and Whole Earth Foods. Kraft-Heinz makes soup, condiments, cheeses and pre-packaged dinners. The entire product line of Whole Earth Foods, on the other hand, is plant based. Since Kraft-Heinz uses animal products in their food, they consider the ethical treatment of animals to be a material issue. Whole Earth Foods does not have cruelty free products as a material issue. This makes sense because they do not use animal products.
Materiality is also dynamic. Your business will change. What is important today may not be tomorrow. And the ESG frameworks and reporting systems are constantly being revised. This means your company needs to be proactive and reexamine your materiality analysis regularly.
ESG adds a small complexity to this topic with “double materiality”. This is the combination of financial materiality—how important it is to your company’s operations (or the “bottom line”) — and societal materiality—how your ESG performance affects the worl
References
Alva Group. (2021). What is ESG materiality? Retrieved on August 11, 2022 from www.alva-group.com
Envizi (2022). Guide to ESG Reporting Frameworks. Retrieved on August 31, 2022 from www.envizi.com
Kraft-Heinz Company (2021). 2020 Progress on ESG Goals. Retrieved on August 29, 2022 from https://www.kraftheinzcompany.com/ESG/
Whole Earth Brands (2022). Our ESG Vision. Retrieved on August 22, 2022 from http://wholeearthbrands.com/environmental-social-and-governance/
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