Why your business should have a sustainability strategy and how materiality analysis is essential for it

By Michael Parkitny

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Having a sustainability strategy has many potential benefits for your company. It can substantially reduce costs by, for example, lowering energy consumption or water intake. It can attract new talent, since 40% of millennials choose their job because of the company’s sustainability efforts. A sustainability strategy can also add brand value and establish a competitive advantage, as well as create new opportunities.

However, every company is unique, and a company’ssustainability strategy must therefore be tailored perfectly for it. That is where the materiality analysis comes into play. With the help of the materiality analysis, your company can determine the specific sectors where you face particular risks and opportunities and how you can leverage your available resources most effectively to achieve the greatest impact in the shortest possible time. In the materiality analysis, the term "materiality" consists of two components: financial and impact materiality.

What you need to know about double materiality

Materiality is a term that originated from finance and refers to factors that may have consequences for a company’s financial performance. EU regulators coined a special understanding of materiality that holistically combines the two perspectives of financial and impact materiality into the overall “double materiality.”

Financial materiality examines how the external environment influences a company’s economic efficiency. External factors can include climate change, new laws, or societal shifts. This Outside-In perspective, meaning how the external (business environment) influences the internal (economic efficiency of the company), is essentially the original understanding of materiality from finance. In contrast, impact materialityrepresents how the internal (company activities) influences the external (environment, society, economy) and can be referred to as the Inside-Out perspective. By having this second layer, you know not only how your company is affected by the external but also what impact you have and where your strengths are when it comes to becoming more sustainable.

This double materiality is reflected in the European Sustainability Reporting Standards (ESRS), and the EU is also encouraging the use of this approach through upcoming regulations. But most importantly, by analyzing materiality with this twofold perspective, you can identify where and how your company can have the largest impact and develop an efficient long-term sustainability strategy.

Since double materiality continues to gain importance, utilizing it for your sustainability reporting allows you tofuture-proof your company and stay ahead of new regulations. By understanding your weaknesses and opportunities, you are more flexible in adjusting to new global trends, especially in the context of sustainability. Finally, by focusing not only on the financial aspect of materiality but also the social and ecological dimensions, you are much more transparent, which is greatly appreciated by your stakeholders and investors. Recent studies have shown that pursuing what is good for society positively affects investors in the long term.

How can we help you by utilizing the materiality analysis

Because it may be challenging to understand the areas of sustainability that your company can tackle, especially since many reporting standards exist (ESRS, Global Reporting Initiative (GRI), etc.), Momentum Novum has devised a 10-step materiality analysis to help you meet all requirements in the most efficient and effective way.

First, all relevant stakeholders are identified and analyzed to incorporate a comprehensive range of perspectives. Data collection and benchmarking capture industry- and company-specific factors that serve as the basis for identifying key issues. By including external perspectives, including expert opinions, the credibility and breadth of the analysis are strengthened. External and internal stakeholders are surveyed to contribute their viewpoints. Data collection is supplemented with additional data, such as climate balance or consumption data, to capture all relevant information.

As Delgado-Ceballos et al. suggest, firm-level sustainability metrics should be connected to the UN’s societal-level Sustainable Development Goals (SDGs), and accomplishingthis goal requires double materiality. This is also our approach. Linking the identified issues to the SDGs creates a clear connection to global sustainability objectives. Analyzing interactions between issues reveals synergies and conflicts that inform strategy development. Finally, the process culminates in an assessment and reporting phase, illuminating the company's impact on external factors and its potential to support the SDGs. This stakeholder-oriented approach in reporting ensures comprehensive inclusion of diverse interests and strengthens results in terms of credibility and impact.

We are happy to support you throughout the entire process of carrying out the materiality analysis, as well as embedding it into your sustainability strategy and report. All our services are designed to empower you to unlock your full sustainability potential and gain a strategic advantage. If you have any questions, please do not hesitate to reach out. We are here to help!