Double materiality as a lever for sustainable progress

For years, sustainability reporting adhered to the principle of materiality, requiring companies to identify the most significant topics and provide proportionate information based on what was available. However, in 2019, the European Commission introduced a pivotal evolution: the concept of double materiality. This approach broadens the traditional perspective by considering not only the financial relevance to the company but also the impact of its activities on people and the environment.

In a study conducted at SDA Bocconi within the Sustainable Operations and Supply Chain (SOSC) Monitor, titled “Strategic Approaches to Sustainable Procurement and Materiality”, we analyzed in depth the principle of double materiality. According to this principle, an ESG topic must be assessed from two perspectives. The first is impact materiality, which examines the effects of corporate activities on people, the environment, and society in the short, medium, and long term. The second is financial materiality, which evaluates how sustainability affects the company's performance, financial position, and development.

The two dimensions of materiality

Impact materiality is of primary importance, as every corporate activity can result in positive or negative consequences, either actual or potential. For instance, an activity may cause direct environmental damage or generate social benefits. Negative impacts are classified based on their severity, taking into account factors such as magnitude, implications, and irreversibility, while positive impacts are assessed in terms of breadth and likelihood.

Financial materiality, on the other hand, focuses on risks and opportunities that directly influence the company's economic results. This analysis extends beyond activities under the company's direct control to include business relationships and effects across the entire value chain.

The role of stakeholders and ESG themes

Stakeholders play a central role in defining ESG topics and shaping the double materiality matrix. This is because they represent a diverse range of actors—from customers to employees, investors, regulators, and local communities—each with different interests and impacts on the company.

Their involvement enables companies to develop strategies that align with societal expectations and comply with regulatory standards. In particular, investors and regulators exert strong pressure on companies to demonstrate their commitment to sustainability, fostering transparency and accountability. Moreover, engaging with stakeholders builds trust and strengthens corporate reputation, signaling a clear dedication to socially responsible behavior.

An inclusive and transparent dialogue with stakeholders is not only an opportunity to enhance business practices but also a necessary condition for the long-term success of sustainability strategies.

A visionary approach to corporate sustainability

The adoption of European sustainability reporting standards in 2023 marks a turning point for companies, providing them with a clear framework to identify the most relevant ESG topics and integrate them into a broader vision. Applying the principle of double materiality offers companies a strategic transformation exercise. It is not merely about complying with regulatory obligations but about seizing a unique opportunity to rethink their role in society: identifying what is "material" requires looking beyond corporate boundaries, engaging diverse stakeholders, and incorporating highly relevant ESG topics into the decision-making matrix.

Looking ahead, success will no longer be measured solely by financial profits but by the ability to create shared value. When applied with foresight, the principle of double materiality can redefine the very concept of corporate competitiveness, transforming sustainability from a mere constraint into a strategic lever for lasting economic and social progress. Ultimately, this vision goes beyond regulatory compliance to embody a tangible contribution by companies to a more responsible and inclusive future.