We need to talk about materiality and impact

Driven by the reporting frameworks and standard setters, the materiality landscape is evolving. Two concepts are leading this change: ‘double’ and ‘dynamic’ materiality. This shift brings improved potential for materiality to be used more strategically and changes how companies consider impact. As momentum builds, we can’t help but feel as though this ‘impact’ conversation stops short of its full potential.

 

What is double and dynamic materiality?

 

Historically the materiality approach tended to focus on ‘impacts inwards’ only. Double materiality recognises that an organisation should report on both impacts inwards (the impact of the sustainability issues on the organisation) and outwards (the organisation’s impact on societal, environmental and economic issues).

 

Dynamic materiality acknowledges that an issue or impact can materially change over time, along a sliding scale. It can go from materially impacting the wider environment, to being financially material for the organisation, and vice versa. 

 

A shift from importance to impact

 

We’re excited by the shift in perspective double materiality brings and its implications for how we consider impact. Double materiality determines material issues based on whether they have an impact on the economy, environment, and people, not on stakeholders’ perceptions of the importance of topics based on organisations’ disclosures which – even with a more quantifiable methodology – is still largely subjective and biased. This is significant because it reorients the role of the stakeholder and recognises that not all stakeholders are equal. Double materiality reframes the emphasis to focus on capturing input from stakeholders who are directly impacted by the organisation. As a result, organisational impact is placed centre-stage in a way not previously seen in the corporate sustainability space.

 

A new methodology for materiality

 

This shift to impact also requires a shift in the materiality methodology. The ‘outside-in’ dimension of impact remains from previous materiality assessments (i.e. assessing impacts from the environment, economy and people on the business). However, the ‘inside-out’ dimension will be new for many companies and requires them to engage with stakeholders who are impacted by the company’s actions and decisions to assess the impact of that company on the environment, people, and the economy.

 

At RY, we assess the outward impact of a company based on four criteria:

- Scale. How grave is the negative impact on the environment, the economy or an individual(s)? Or how beneficial is the positive impact?

- Scope. How widespread would the impacts be?

- Remediability. In the case of a negative impact, how easily can it be put right?

- Likelihood. What is the chance of the positive or negative impact happening?

 

This methodology draws on the internationally recognised UN Guiding Principles on Business and Human Rights which advocates an impact-based approach to assessing human rights issues.

 

Double materiality still falls short

 

It’s a step in the right direction to ask companies to identify their outward impacts, but additional value lies in measuring a company’s progress towards mitigating or enhancing that impact. This is known as ‘impact measurement’. It’s the process of quantitatively and qualitatively evaluating the organisation’s impacts, then finding ways to mitigate the negative impact and maximise the positive, in alignment with an organisation’s goals.

 

While the international development community and NGO space have been measuring social impact for a long time, the corporate sector lags behind and very few companies are equipped to measure impact. This has real implications for sustainability. Unless companies commit to measuring impact, their sustainability initiatives are bound to solve only pockets of social and environmental problems or have no real impact at all. Additionally, measuring your impact shows accountability and transparency – both are vital in a world where walking the talk is more valued than ever.

 

We welcome these recent changes to the materiality landscape. The increased focus on materiality as a strategic tool and the renewed emphasis on impact are positive developments with broad potential for businesses and stakeholders alike. However, the work is far from over. It’s high time we hold businesses to account and demand they provide a means to better understand, demonstrate and manage their role and contribution to society through impact measurement. The road to corporate impact measurement will be challenging and at RY we’re here to accompany businesses on that journey. We can’t expect change overnight, but no longer can we settle with being given half the picture. Impact measurement provides the missing half and we believe it won’t be long until stakeholders realise its value.

 

To learn more about double and dynamic materiality, read our thought leadership or watch a short video we’ve created. Or, if you’d like to learn more about RY’s unique approach to delivering robust materiality assessments, we’d love to talk.