Introduction
Organizations face a growing range of sustainability-related issues, from climate change and resource use to biodiversity, human rights, workforce practices and governance. But the relevance and significance of these issues can vary considerably from one organization to another.
This makes materiality an important starting point. It helps organizations move beyond a broad list of sustainability issues and determine what matters, why it matters and from whose perspective. Materiality is therefore not simply about deciding what to report. It provides a basis for understanding the issues that may require management attention, strategic action and resources.
Situation: Organizations Both Impact and Are Impacted by Sustainability Issues
The relationship between organizations and sustainability is two-way. Organizations can have significant impacts on people, the environment and the economy through their operations, products, services, workforce practices, procurement and value chains. At the same time, organizations can be affected by sustainability-related developments in the external environment.
For example, a manufacturing company may create environmental impacts through emissions, waste or resource use, while also being exposed to changing energy prices, resource constraints or climate-related disruptions. A company with an extensive global supply chain may affect workers and communities through its sourcing practices, while also being affected by labour shortages, changing regulations or disruptions in its supply base.
The significance of these relationships can extend well beyond the sustainability function. An environmental or social issue may affect operational continuity, reputation, access to resources or stakeholder relationships. Conversely, a sustainability-related external development may affect revenues, costs, assets, investment requirements, cash flows or access to finance.
Materiality helps bring these different relationships into focus. It provides a way for an organization to identify which sustainability matters are significant enough to warrant attention and action.
Complication: Determining What Is Material Is Not Straightforward
The challenge begins with the sheer range of sustainability issues an organization could potentially consider. The question is not simply whether an issue exists, but whether it is significant for the organization, its stakeholders, people or the environment—and over what time horizon.
More importantly, sustainability issues can be material from different perspectives. Financial materiality considers whether a sustainability-related risk or opportunity could affect the organization's financial position, financial performance, cash flows, access to finance or cost of capital. For example, increasing physical climate risks could lead to higher insurance costs, operational disruption, asset damage or additional capital expenditure. These are sustainability-related issues, but their significance may ultimately emerge through financial consequences.
Impact materiality considers the organization's actual or potential positive and negative impacts on people and the environment. For example, poor working conditions within a supply chain may have significant consequences for workers even if the immediate financial effect on the organization is limited.
This creates an important distinction: an issue can be material because of its impact on people or the environment, because of its potential financial consequences for the organization, or because of both.
Assessing these perspectives is not always straightforward. Organizations need to consider their business model, sector, geography, value chain, stakeholders, dependencies, actual and potential impacts, risks and opportunities. They also need to distinguish between issues that are important in principle and those that are significant enough to become organizational priorities.
Without a structured approach, materiality assessments can become subjective, overly broad or focused primarily on what is easiest to measure or report.
Solution: Use Materiality to Identify Priorities and Guide Action
A robust materiality assessment provides a structured way to identify, evaluate and prioritize sustainability matters. It should consider the organization's activities and business relationships, relevant stakeholders, potential impacts, dependencies, risks and opportunities, and the circumstances in which the organization operates.
The distinction between financial and impact materiality is particularly important.
The ISSB Standards take a financial materiality perspective, focusing on sustainability-related risks and opportunities that could reasonably be expected to affect an organization's prospects—including its cash flows, access to finance or cost of capital over the short, medium or long term.
The GRI Standards focus on impact materiality. GRI 3 defines material topics as those representing an organization's most significant impacts on the economy, environment and people, including human rights. Its process involves identifying and assessing actual and potential impacts and prioritizing the most significant ones.
The ESRS brings the two perspectives together through double materiality. A sustainability matter can be material from an impact perspective, a financial perspective, or both. ESRS also recognizes that the two perspectives are interconnected: an impact may create financial risks or opportunities over time, while an organization may also face financially material risks arising from dependencies on natural, human or social resources.
The practical value of materiality, however, extends beyond applying a particular standard. A well-designed assessment can help organizations:
- identify sustainability issues that warrant management attention
- understand how those issues affect people, the environment and the organization
- prioritize resources and strategic responses
- connect sustainability with risk management and business strategy
- establish the basis for objectives, targets and performance measures
Nestlé provides a recent example of this approach. Its 2025 reporting states that its double materiality assessment helps identify sustainability impacts, risks and opportunities that are most relevant to both Nestlé and its stakeholders and helps incorporate wider sustainability issues into the risks and opportunities considered across the company.
The objective is therefore not to create an exhaustive list of sustainability topics. It is to develop a clear, evidence-based view of what matters most, from which perspective, and what the organization needs to do about it.
Materiality becomes valuable when it moves from assessment to action—helping organizations focus attention, allocate resources and make better-informed decisions.
How Edify Advisory Can Enable This
At Edify Advisory, we can enable organizations to develop the capability to identify, assess and prioritize sustainability issues based on their relevance to the organization and its stakeholders.
Through a practical approach, participants can explore financial materiality, impact materiality and double materiality, examine how sector, geography, business model and value-chain characteristics influence material issues, and learn how stakeholder perspectives can contribute to the assessment. The learning can then connect materiality outcomes with strategy, risk management and organizational decision-making.
The objective is to help organizations move from “What sustainability issues exist?” to “Which issues matter most to us, why do they matter, and what should we do about them?”
When materiality is approached in this way, it becomes more than a reporting exercise. It becomes a foundation for setting priorities, allocating resources and integrating sustainability into business decisions.
Originally published on LinkedIn · Cover image: Bozan Güzel via Pexels
