Video: Let’s Talk About Double Materiality...
Video Transcript:
Ever wondered how companies decide what risks matter? It used to be simple. The approach focused on single materiality.
An approach using single materiality is like looking in a mirror. It only reflects how the outside world affects the business. It shows how outside risks, like a storm or a new regulation, —might affect the company’s house - In other words, its financial performance. An example is a refinery that worries about rising sea levels damaging its equipment. That's a risk to the business.
But the world has changed. Now we need to use double materiality. We add a window. This window lets us see two things: First, the risks coming in—just like the mirror.
But now we can also see how the house's actions—like smoke from the fireplace or waste from its operations—affect the neighborhood. Double materiality looks at the financial risk to the company and the company’s impact on the people and planet.
This is critical for pension funds and long-term investors. A company that pollutes its neighborhood is creating future liabilities—fines, new regulations, boycotts—that will eventually come back through the window as a financial risk.
By understanding both perspectives, pension funds assess not just financial stability, but the sustainability of that value and also the broader social and environmental impacts of the companies they invest in. Single materiality shows the risk to your investment. Double materiality ensures a better investment for the world.
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