The strategic value of double materiality beyond reporting

The new European regulatory framework, through the Corporate Sustainability Reporting Directive (CSRD), has proposed a paradigm shift for companies in terms of the way in which they report and manage aspects related to sustainability (environmental, social and governance).

A crucial aspect of this regulation is the requirement for dual materiality analysis, which requires companies to look not only at how their activities affect the environment and society (impact materiality) but also at how external factors impact their business (financial materiality).

Through the exercise of dual materiality, organizations are finding new ways to align sustainability with their business strategy and to financially quantify impacts, risks and opportunities. In our experience accompanying companies to comply with this new regulatory framework, we have identified several key trends that are emerging and transforming the way in which organizations operate.

1. Alignment with business strategy

The exercise of dual materiality is helping companies to integrate sustainability more directly into their business plans.

The exercise of dual materiality helps companies focus on what is truly relevant to their sector and business (for example, a bank would prioritize financial inclusion over the management of their water consumption). In addition, by analyzing sustainability from a financial perspective, companies identify and incorporate sustainability risks in their risk map, and opportunities in their strategies, making them stop being external factors without being monetized.

Instead of seeing sustainability as a cost center, more and more organizations consider it an essential component of their growth strategy. This alignment ensures that financial decisions are in line with ESG objectives, facilitating responsible growth and long-term resilience.

2. Active involvement of finance and risk teams

What was once an almost exclusive responsibility of sustainability departments, now also receives the attention of finance and risk teams, who recognize the effect that risks and opportunities related to sustainability can have on financial results. According to the CSRD, sustainability risks affecting the company's accounts must be reflected and traceable in financial provisions, thus integrating these risks into financial accounts. This integration makes it possible to more precisely quantify the financial effects of risks and opportunities derived from ESG issues, providing greater rigor and clarity in strategic decision-making.

3. Quantification of risks and opportunities with clear financial effects

The ability to accurately quantify ESG risks and opportunities is a trend that is being strengthened thanks to collaboration between sustainability and finance teams.

This involves translating social and environmental impacts into financial terms, allowing companies to better measure and manage these risks in the short and long term.

By providing clear financial effects, organizations can make more informed decisions that not only minimize risks, but also seize opportunities to jointly generate economic and social value.

4. A greater role for the sustainability team

As sustainability becomes a strategic pillar for the business, sustainability teams are taking on a more prominent role within companies. This drive in the area of sustainability is reflected in the hiring of experts with technical knowledge in managing social, environmental and governance impacts, risks and opportunities.

This team, in addition to leading the dual materiality analysis, works closely with other departments and actively participates in management committees, ensuring that sustainability issues are deeply integrated into all company operations.

5. Greater collaboration across the value chain

Dual-material analysis is forcing companies to evaluate their impacts not only on their direct operations, but also along the entire value chain. This has improved collaboration with suppliers and partners to mitigate shared risks and take advantage of sustainability opportunities.

In sectors such as manufacturing or retail, this trend is generating positive change through better sustainability practices throughout the supply chain.

6. Technology as a lever

Companies are increasingly turning to advanced ESG data management, predictive analytics and artificial intelligence technologies to efficiently collect, process and report large amounts of data.

Not only do these technologies facilitate regulatory compliance, but they also provide greater transparency and the ability to anticipate future risks. This is transforming the way companies manage their ESG impacts and, in turn, allows for more agile and informed decision-making.

7. Increased involvement of boards of directors

Boards of directors are more involved in overseeing ESG aspects, driven by regulatory requirements that establish specific responsibilities in the analysis of dual materiality. Councils are taking greater responsibility for corporate governance, integrating sustainability impacts, risks and opportunities into their agendas as essential factors in the companies' roadmap.

This more active oversight also responds to the growing demands of investors and other stakeholders who seek guarantees regarding profitability and the integration of sustainability into their products and services.

8. Improved trust and corporate reputation

Finally, the effective implementation of dual materiality analysis is having a positive impact on the trust and reputation of companies. Transparency in sustainability management, combined with the alignment of sustainability with the business plan, reinforces the company's credibility with investors, consumers and employees.

Companies that lead with this approach are not only complying with regulations, but they are also building long-term relationships of trust with their stakeholders, creating shared value and reinforcing their resilience.

Its value lies in the continuous application, not just using it for reporting

Dual materiality analysis goes beyond simple regulatory compliance. By effectively integrating it, companies can turn it into a strategic tool that strengthens their resilience, improves their decision-making, anticipates adaptation to future regulations (such as the Due Diligence Directive, CSDDD) and allows them to identify new opportunities in a context of increasing uncertainty.

This exercise provides a comprehensive view of ESG impacts, risks, and opportunities, and its true value emerges when used on an ongoing basis, not just as a reporting requirement. Instead of being archived after the presentation of the report, it can be a catalyst for sustainable growth and long-term competitive advantage.