What is impact materiality?

Impact materiality is a key concept in ESG reporting

As companies increasingly focus on environmental, social, and governance (ESG), the concept of impact materiality has become crucial in sustainability reporting.

But with all the buzz words around ESG it can be a bit of a maze, particularly around materiality- there are so many different types! So today we are going to look at Impact Materiality, what it is and why it is important in ESG.

What is Impact Materiality?

Impact materiality refers to how a company's actions and operations affect people, society, and the environment (both positively and negatively). Unlike financial materiality, which focuses on how sustainability issues impact a company's financial performance, impact materiality looks outwards at the effect a company has on the world around it. It includes both direct impacts through a companies operations as well as indirect impacts via their supply chain. When you combine financial and impact materiality you have double materiality- another important concept which is gaining increasing traction in the world of ESG.

Some examples of impact materiality:

• Environmental Impact: A manufacturing company’s co2 emissions may not immediately impact its financial statements, but the environmental damage could contribute to climate change, leading to long-term risks in terms of governance/reporting, reputation risk, or disruptions to operations due to the impacts of climate change (e.g. flooding, extreme weather etc.).
• Social Impact: A company with poor labor practices might not face short-term financial consequences, but its practices could lead to reputation damage leading to poor publicity as well as decreased productivity in the long run caused by the inability to retain employees.
• Governance Impact: Companies lacking diversity in their leadership teams might be less innovative or capable of making decisions that resonate with their consumer base. In this case, poor governance impacts societal diversity and inclusion.

Why is impact materiality important?

Impact materiality is about moving beyond business purely for short-term profits and transitioning to a target of long-term resilience, social responsibility, and environmental stewardship. It’s about seeing the big picture—how your business shapes the world, and how the world, in turn, shapes your business. Whether you’re a startup or a global enterprise, embracing impact materiality is the future of business.

Ready to look at the impacts of your business? Reach out to Bemari hello@bemari.co.uk.

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