Understanding Double Materiality and the Updated GRI Standards

The GRI standards, employed by more than 10,000 entities across 100+ nations, stand as the most extensively adopted sustainability reporting framework globally. These standards provide a vehicle for an organization to publicly disclose its most significant impacts on the economy, environment, and people. In 2021, GRI unveiled its revised Universal Standards, aligning with leading reporting practices regarding an organization's influence on the economy, environment, and people, including human rights. But, what does this update mean for companies and their sustainability reporting?  

In our webinar entitled, "The Key to Impactful Reporting: Understanding Double Materiality and the Updated GRI Standards" Bradford Conroy, Senior Professional, moderates a discussion with Theresa Blackwell, Project Professional; Jessica Tung, Project Professional; and Richard Taylor, Senior Project Manager about the updated GRI Standards, the concept of double materiality, and how this will impact companies’ sustainability reports going forward.  

Breaking Down GRI 

When looking at a company's sustainability reports, globally there are a few leading standards and frameworks utilized, including GRI, TCFD, the Sustainable Development Goals, and SASB. However, GRI remains the most commonly used reporting standard globally with a 75% adoption in the Americas alone.  

GRI stands for the Global Reporting Initiative, and it is an independent international organization that provides a global common language for corporate transparency to help businesses and other organizations understand and communicate their sustainability impacts. As the most widely used reporting standard internationally, GRI has set four strategic priorities: 

1. Create and maintain world-class sustainability disclosure standards.  
2. Drive global adoption of the GRI Standards. 
3. Improve the quality of reporting. 
4. Support full public access to sustainability disclosures.  

GRI is the global standards setter for impact reporting, maintaining the world's most comprehensive sustainability reporting standards to encourage more reporters and better reporting.  

The Updated 2021 Standards: What to Know 

In 2021, GRI released their new updated 2021 Standards. While there were changes to the structure of the standards, including a reduced list of topic standards for a total of 31, and the inclusion of the sector standards as a formal part of the overall GRI standards now, the key difference in this update is the specific focus on human rights. 

The goal with this universal standards update is to bring the GRI standards in line with the UN Guiding Principles (UNGPs) on Business and Human Rights, the OECD’s guidelines and tools on responsible business conduct, and the International Labor Standards.  

Businesses should take steps to know their negative human rights impacts, avoid involvement in negative human rights impacts, and address such impacts when they occur in line with their level of involvement. A few specific things that businesses should have include a policy commitment to meet their responsibility to respect human rights, a human rights due diligence process to identify, prevent, mitigate, and account for how they address their impacts on human rights, and processes in place to enable the remediation of any negative human rights impacts they cause or to which they contribute. 

GRI 1: Foundation 2021 Key Concepts 

There are four key concepts of the GRI 1: Foundation 2021. These key concepts lay the foundation for sustainability reporting, speaking to the fact that the new GRI Universal Standards includes full integration of human rights, rather than that being an optional standalone topic standard. 

This means that for the first time, all organizations that are using the GRI Standards are expected to report on how they respect human rights. The four key concepts are: 

1. Impact: The effect an organization has or could have on the economy, environment, or people, including on their human rights, as a result of its activities or business relationships.  
2. Material Topics: Those that represent that organization’s most significant impacts on the economy, environment, and people, including impacts on human rights. 
3. Due Diligence: The process through which an organization identifies, prevents, mitigates, and accounts for how it addresses its actual and potential negative impacts on the economy, environment, and people, including impacts on their human rights. 
4. Stakeholder: Individuals or groups that have interests that are or could be affected by an organization’s activities. 

These four concepts in GRI 1 are interlinked and aimed to help an organization produce a complete and comprehensive list of material topics. 

The new Universal Standards officially replaced the 2016 version on January 1st, 2023, and they are in effect now. So, for any company that just released their 2023 sustainability reports, it’s time to start thinking about adopting these updated standards for publishing in 2024.  

Double Materiality and Corporate Reporting 

Since the ESG landscape continues to evolve, what should companies focusing on ESG and sustainability do to meet these changing demands? While this increasing awareness and acceptance of internationally recognized standards and the growing imperative to operate in a climate-focused manner is generating more ESG-related inquiries into company performance, companies are now turning to emerging regulations and these updated global standards which are requiring double materiality to meet these expectations to determine which ESG topics are highest priority.  

Regulations such as the EU CSRD or the updates to the 2021 GRI Standards are having companies comply with an impact materiality driven process for ESG topic determination. Double materiality is considered foundational to developing an ESG strategy, providing valuable fact-based direction on which topics to prioritize.  

Double Materiality and the 2021 GRI Standards Update 

Double materiality is an exercise to identify and prioritize the ESG topics for management and disclosure, and as the double name implies, there are two overarching considerations: financial and impact. Financial materiality has been in practice for many years and is chiefly concerned with understanding the relationship between ESG topics and economic value creation for a business. Impact materiality is centered on understanding what impacts business operations (including those of the value chain) have on affected people and the environment. 

Taken in unison, an Impact Assessment and Financial Materiality Assessment form a Double Materiality assessment. This allows a company to prioritize the most important ESG topics to its stakeholders and those topics where it has the largest impact on affected people and the planet.  

Completing a double materiality assessment is an important step in allowing a company to take a more holistic approach to value creation. This can help companies move beyond shareholder and shared value to ensure that environmental and societal needs are integrated into the business strategy. Double materiality forms the basis for creating a system of transparency and accountability that builds trust and helps illuminate the impacts that the organization has on the world. 

As mentioned above, the 2021 updated GRI Standards underscore the significance of human rights reporting using the dual materiality approach. This is naturally pushing more and more companies to consider double materiality in their reporting, with that trend expected to only increase as time goes on. 

Key Takeaways 

In summary, as stakeholder expectations evolve, companies are being pushed to disclose their societal and environmental impacts through sustainability reporting. GRI's 2021 Updated Standards, which went into effect in January of 2023, focus on human rights, aligning with international principles. This shift encourages companies to prioritize key ESG topics by assessing their financial and impact aspects. Adopting double materiality enables companies to adapt to evolving ESG demands, fortify their strategies, and promote responsible business practices. This holistic approach transcends shareholder value to integrate societal and environmental concerns into business strategies, enhancing transparency and trust. As the landscape evolves, companies embracing these shifts position themselves for sustainable success. 

Are you struggling to keep up with updates and changes, and do you need help with your corporate sustainability reporting? Reach out to our Corporate Sustainability Reporting and Disclosure team today! 

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