Measuring Double Materiality: Focus on Water Impact

ESG
:   
Disclosure
September 2, 2024

Double materiality is a concept primarily used in corporate sustainability reporting and decision-making. It considers both:

  1. The impact of environmental, social, and governance (ESG) factors on a company's financial performance and value.
  2. The impact of a company's activities on the environment, society, and economy.

Here's an example to illustrate double materiality:

Let's consider a hypothetical beverage company called "FreshDrink Co."

  1. Financial materiality (impact on the company):Climate change is causing water scarcity in regions where FreshDrink Co. sources its water. This scarcity could lead to increased water costs and potential supply disruptions, directly affecting the company's financial performance and long-term viability.
  2. Environmental and social materiality (impact of the company):FreshDrink Co.'s water usage in water-stressed areas may be depleting local water resources, affecting the surrounding ecosystems and communities' access to clean water.

In this example, double materiality requires FreshDrink Co. to consider and report on:

  • How water scarcity risks affect its financial performance and strategy
  • How its water consumption impacts local communities and environments

By addressing both aspects, the company can make more comprehensive decisions that consider both its financial sustainability and its broader impact on the world.

Detailed Focus: Measuring Water Impact

While water usage is measured in volumes (liters or gallons), the actual impact is assessed through various methods:

  1. Water Stress Index:
    • Compares water withdrawal to water availability in a given area.
    • Tools like the WRI Aqueduct Water Risk Atlas provide water stress scores for different regions.
    • Impact is higher in water-stressed areas.
  2. Water Footprint Assessment:
    • Measures direct and indirect water use throughout the value chain.
    • Categorizes water use into blue (surface/groundwater), green (rainwater), and grey (polluted) water.
    • Helps identify hotspots of water consumption and pollution.
  3. Life Cycle Assessment (LCA):
    • Evaluates water-related impacts throughout a product's life cycle.
    • Considers factors like eutrophication, acidification, and aquatic ecotoxicity.
  4. Local Impact Assessment:
    • Evaluates effects on local water bodies, ecosystems, and communities.
    • May include biodiversity assessments, community surveys, and ecosystem service valuations.
  5. Water Quality Metrics:
    • Measures pollutants in wastewater (e.g., BOD, COD, pH, temperature).
    • Assesses impact on receiving water bodies.
  6. Water Efficiency Ratios:
    • Calculates water use per unit of production or revenue.
    • Helps track improvements in water use efficiency over time.
  7. Context-Based Water Targets:
    • Sets water use goals based on the local context and science-based thresholds.
    • Aligns corporate water use with sustainable water use for the watershed.
  8. Economic Valuation:
    • Assigns monetary values to water-related impacts and dependencies.
    • Helps translate environmental impacts into financial terms for decision-making.

‍

Cambridge Institute for Sustainability Leadership (CISL)

Explore more insights

See All Insights
Disclosure

Green Washing

Greenwashing is the practice of making false or misleading claims about the environmental benefits or sustainability of a product, service, or company. This can include exaggerating or fabricating a product's eco-friendliness, hiding its negative environmental impacts, or making unsubstantiated claims about its sustainability.
Disclosure

Measuring Double Materiality: Focus on Social Impact

Social impact in the context of double materiality refers to how a company’s operations affect people and communities. This includes direct and indirect consequences of business activities on employees, consumers, local communities, and society at large.
Disclosure

Measuring Double Materiality: Focus on Governance Impact

Governance impact in the context of double materiality focuses on how a company’s governance structures influence both its financial performance and its broader societal impact. This approach requires organizations to evaluate both how governance practices affect their bottom line and how they impact stakeholders such as employees, shareholders, and the community.
Disclosure

Double Materiality

Double materiality suggests that companies should assess the impact of external environmental and social factors on their operations (external materiality) and evaluate the impact of their activities on the external environment and society (internal materiality).
Disclosure

2020 UK Stewardship Code

The responsible allocation, management, and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment, and society
Disclosure

Benchmarking

Benchmarking ESG peers enhances a company's sustainability efforts by identifying best practices, improving performance, ensuring regulatory compliance, and increasing transparency.