01 Dec 2021

The Challenge of Double Materiality – Sustainability Reporting at a Crossroad

A significant announcement at the COP26 meetings in Glasgow in November 2021 was the launch of the International Sustainability Standards Board (ISSB) by the International Financial Reporting Standards (IFRS) Foundation. This essentially means that the top sustainability reporting organizations except GRI are now working in a coordinated way on a benchmark reporting standard, which is very likely to be adopted as the basis for mandatory reporting in many jurisdictions.

This edition examines why an investor-focused reporting standard led by the ISSB would raise questions on the purpose of sustainability reporting: should it become largely a tool for investors to minimize risk and seek financial opportunities; or should it serve as a deeper indicator of corporate responsibility, ensuring companies act in the broader, long-term interests of society? At the centre of this controversy is the concept of “double materiality” which acknowledges the fact that risks and opportunities can be material from both a financial and non-financial perspective, and companies and financial institutions must manage and take responsibility for the actual and potential adverse impacts of their decisions on people, society and the environment.