If your manufacturing company is already doing ESG reporting, you may feel like you are unable to incorporate Double Materiality into your ESG program and reporting. However, the opposite it true. If you already have a strong foundation then integrating double materiality is an evolution, not a complete overhaul. Here's how to approach it:
- Expand Your Stakeholder Engagement
Your current ESG process likely involves engaging key stakeholders. For double materiality, you need to broaden and deepen this engagement:
- Internal Stakeholders: Include not just sustainability teams, but also risk management, legal, procurement, HR, product design, and operations. Their insights are crucial for understanding both financial and impact aspects.
- External Stakeholders: Engage a wider array. Beyond investors and customers, consider local communities, energy providers, labor unions, suppliers, and even regulatory bodies. Each group offers a unique perspective on your company's impacts and the ESG factors that affect your business.
- Deepen Your Risk and Impact Assessment
This is where the core of double materiality lies.
- Current State Analysis: Review your existing materiality assessment. Does it heavily lean towards financial impacts? Identify gaps where you might not be fully capturing your impact on the environment and society.
- Dedicated Impact Assessment: Conduct a systematic assessment of your actual and potential impacts. This should cover your entire value chain, from raw material extraction to product end-of-life. Consider:
- Environmental: Lifecycle assessments (LCAs), biodiversity impact studies, water stress analyses, pollution mapping.
- Social: Human rights due diligence, supply chain labor audits, community impact assessments, health and safety audits.
- Connect the Dots: For each identified material issue, explicitly assess both its "outside-in" (financial) and "inside-out" (impact) dimensions. For example:
- Water Usage: Financial: Risk of water scarcity impacting production, increased costs; Impact: Depletion of local water resources, stress on ecosystems.
- Waste Generation: Financial: Disposal costs, regulatory fines; Impact: Landfill burden, pollution, resource depletion.
- Employee Health & Safety: Financial: Lost productivity, insurance costs, reputational damage; Impact: Harm to human well-being, ethical responsibility.
- Integrate Data Collection and Reporting Systems
Your existing data collection processes will need to be enhanced.
- Expand Data Points: Identify new data points required to robustly measure your impacts. This might involve new metrics for biodiversity, human rights due diligence in the supply chain, or circularity indicators.
- Enhance Traceability: For manufacturing, supply chain traceability is paramount for impact materiality. Invest in systems that provide better visibility beyond suppliers into End of Life product management.
- Narrative and Metrics: Ensure your reporting articulates both sides of materiality. Provide clear metrics for both financial implications (e.g., cost savings from waste reduction) and actual impacts (e.g., tons of waste diverted from landfill).
- Align with Evolving Standards
While your current ESG reporting likely follows frameworks like GRI or SASB, be prepared for increased alignment with new global standards.
- ISSB and CSRD: Familiarize yourself with the International Sustainability Standards Board (ISSB) standards and the EU's CSRD. These are explicitly built on double materiality principles and will become benchmarks for robust reporting.
- Sector-Specific Guidance: Look for sector-specific guidance within these new frameworks or from industry associations that can help tailor your assessment to the unique challenges and opportunities of manufacturing.
Conclusion For manufacturing companies, double materiality isn't just another layer of reporting; it's a fundamental shift towards a more comprehensive understanding of your business in the world. By embracing this approach, you move beyond merely showcasing good deeds to genuinely embedding sustainability into your core strategy and operations. This leads to more robust risk management, greater innovation, and ultimately, a more resilient and responsible future for your company and the communities you serve.