Double Materiality Through an ERM Lens

Transform Sustainability Insight into Strategic Advantage

Sustainability topics like climate impact, workforce issues, and community expectations are no longer side conversations for organizations. Now, they’re influencing everyday business decisions, long-term strategy, and stakeholder trust. To better understand these issues, many organizations are beginning to use a double materiality assessment (DMA). Simply put, a DMA looks at two things at once: how sustainability issues can affect the organization’s financial success, and how the organization’s activities can affect people and the environment.

In theory, this approach provides valuable insight. In reality, it can feel overwhelming or disconnected, especially for organizations that are new to sustainability and risk management. Leaders may find themselves completing surveys, attending workshops, and producing reports that don’t clearly tie back to how decisions are actually made. The problem isn’t a lack of information; it’s that the information isn’t embedded into day-to-day management.

This is where Enterprise Risk Management (ERM) comes in. For organizations with mature ERM programs, integrating sustainability into existing risk processes can strengthen both. For those just getting started on the ERM or sustainability journey, it’s an opportunity to build a practical, integrated approach from the beginning – one that connects risk, strategy, and sustainability in a way that supports smarter decisions, not just better documentation.

Why Double Materiality Is Gaining Strategic Relevance

At its core, double materiality expands the traditional view of materiality in two important ways:

• Financial materiality considers which sustainability-related issues could reasonably affect an organization’s financial performance, position, or long-term viability.
• Impact materiality looks outward, examining how the organization’s activities affect stakeholders and the broader environment, even when those impacts may not yet be financially visible.

To illustrate this point, we particularly like the graphic image developed by the Sustainability Reporting Tool Project:

Source: Sustainability Reporting Tool Project, https://www.esgtool.eu/en/double-materiality

For many organizations, particularly those not subject to mandatory sustainability reporting, double materiality is less about compliance and more about strategic foresight. It encourages leadership teams to:

• Extend time horizons beyond the next planning cycle
• Anticipate emerging risks and opportunities
• Understand stakeholder expectations before they crystallize into financial or reputational consequences

This shift is increasingly driven by evolving expectations from members, clients, donors, communities, partners, insurers, and employees. These expectations are beginning to influence reputation and relationships, access to insurance, funding and capital, and overall risk profiles. As these pressures move upstream, organizations that engage early are better positioned to proactively shape their response, rather than having to react once expectations harden.

When done correctly, double materiality strengthens resilience, informs strategy, and supports long-term value creation.

Where Double Materiality Breaks Down

Despite its promise, DMAs are frequently treated as standalone sustainability exercises, managed separately from core risk and strategy processes. This separation creates several practical challenges:

The issue is not that double materiality lacks value. It’s that, without integration, it can inadvertently increase workload while diluting impact.

The Overlooked Overlap: ERM Already Covers Much of the Groundwork

For many organizations, financially material sustainability issues are already part of ongoing strategic discussions. Climate risk, supply chain disruption, workforce challenges, regulatory change, data and technology risks, and reputational exposure are already impacting organizations and are routinely assessed through an ERM lens.

What is often missing is sufficient context for long-term and stakeholder-driven decision-making:

• ERM tends to prioritize risks based on near- to medium-term financial exposure.
• By engaging a broad scope of stakeholders, double materiality broadens the lens to include longer-term horizons and external impacts.
• Stakeholder perspectives from customers, donors, employees, communities, and partners, are often underweighted in traditional risk assessments.

Seen this way, double materiality does not replace ERM. It enhances it.

Using ERM as the Backbone for Double Materiality

Integrating double materiality into an existing ERM framework offers a practical way to unlock value while minimizing additional burden. ERM provides the infrastructure that double materiality often lacks:

• A common risk language that enables comparison and prioritization
• Governance structures that support escalation and accountability
• Established links to strategy, performance, and decision-making

When double materiality insights are embedded into ERM processes, organizations can move from parallel assessments to a single, more holistic risk universe. Financial and impact considerations are evaluated together, allowing leadership to better understand trade-offs, interdependencies, and emerging risks before they become critical.

This integrated view also helps organizations identify where sustainability trends create opportunity, not just exposure. The process can highlight areas where stakeholder expectations, donor funding trends, market shifts, or regulatory trajectories may support new services, operating models, donor funding streams or sources of competitive advantage.

A Lighter Lift with Greater Strategic Payoff

Integrating double materiality into ERM means using the processes you already have to focus on what really matters, without creating extra work. It helps you manage sustainability issues in a practical way, avoid doing the same work twice, clarify who is responsible for what, and connect stakeholder priorities to real decisions and resources.

The result is a single, decision-ready view of risk and opportunity. Sustainability moves from a separate initiative to part of how the organization runs, strengthening resilience and impact without adding complexity.

GRF Can Help: From Insight to Advantage

Double materiality can be a powerful tool for understanding risk, opportunity, and impact, but only if its insights inform real decisions. Organizations benefit most when ERM and sustainability are designed together by teams that understand both disciplines in practice.

GRF’s work at the intersection of ERM and sustainability focuses on helping organizations right-size and integrate these efforts by building on what already exists, avoiding unnecessary complexity, and translating sustainability insights into risk-informed strategic decisions. Ultimately, this strengthens resilience, long-term value, and positive organizational impact. Learn more about our ESG/Impact services. We’d be happy to help you. Feel free to contact us to discuss your ERM journey.

Melissa Musser, CPA, CIA, CITP, CISA

Partner and Director, Risk & Advisory Services

Omid Mohebbi, CPA

Senior Manager, Audit & Assurance

Alex McNeill, PMP

ERM & ESG Advisor, Risk & Advisory Services