Advancing Double Materiality through Impact Valuation

Authors: Frits Klaver, Inga Trofimova, Alissa Griffioen, Annoek Reitsema, Tatiana Kan

The concept of double materiality, which considers both the impact of external issues on an organization and the organization’s impact on the world, has been foundational in guiding entities through sustainable operations. However, traditional DMAs, often qualitative and stakeholder-based, can lead to ambiguities and inconsistencies in prioritizing and reporting sustainability issues. This paper proposes a framework that integrates a more rigorous, quantitative approach using IMV to enhance clarity, comparability, and objectivity in these assessments.

Deloitte's proposed framework outlines a dual-path approach to integrate IMV into DMAs. One path initiates with a quantitative analysis providing a robust, data-driven foundation which streamlines subsequent stakeholder discussions. The alternative path starts with qualitative stakeholder inputs which are later refined using quantitative data derived from impact measurement and valuation. This flexible framework is designed to cater to various organizational needs and contexts, thereby augmenting the decision-making process concerning sustainability strategies.

This document not only shares the challenges organizations face with current DMA practices but also showcases how enhanced DMAs could support organizations in their sustainability reporting and comply with emerging regulations like the Corporate Sustainability Reporting Directive (CSRD). By quantifying impacts in monetary terms, organizations can offer a clearer, more transparent account of their sustainability performance, thereby fostering trust and facilitating better communication with stakeholders.

Furthermore, the paper details the application of this enhanced framework specifically to financial sectors and holding companies. These entities face unique challenges due to the complexity and scale of their operations and impact. A quantitative-first approach for these sectors is recommended to provide a solid foundation for materiality assessments, enhancing the relevance and rigor of what is material.

While the integration of IMV into DMA processes marks a significant advancement, it is an ongoing journey of refinement and adaptation. Organizations are encouraged to embrace this evolution, recognizing the potential long-term benefits of making data-driven, impactful decisions.

Overall, the paper serves as a pivotal resource for organizations aiming to elevate their sustainability practices through more precise and impactful practices. It invites businesses to transition from traditional, often subjective assessments to a more objective, quantifiable, and actionable approach, preparing for a future where corporate sustainability efforts are as measurable and transparent as financial ones. The document is set to reshape how organizations perceive and report their materiality, enabling them towards more responsible and sustainable business practices.