What is Triple Materiality?
We’ve had single, double, dynamic and nested materiality - now there’s a new one: triple materiality. Based on lectures I give at the University of Cambridge and Imperial College in London, here’s everything you need to know about the new idea of triple materiality.
Triple Materiality: What Is It?
Materiality is about measuring, managing and disclosing the issues that matter for an organisation. Materiality is fundamentally about prioritisation: for strategic planning, issues management, target setting, corporate reporting or data disclosure. From outside the firm, materiality can also be used as a process to build a methodology - for raters, rankers, investors or any users to decide which issues to judge a firm on.
But what lens do we use to prioritise those issues? Why we are doing it, who’s asking, when we are looking at (timeframe) and now where (place) have always mattered. But triple materiality sheds a new light on the importance of this last category: where, the geography, the context and the scientific thresholds and norms used to make sense of that.
As a reminder:
Single (financial) materiality considers whether an issue might impact on the organisation. It’s most commonly used as a lens for determining enterprise value creation.
Double materiality involves additionally considering how the organisation impacts on people and planet. This wider stakeholder lens also scoops up issues irrespective of their effect on enterprise value today. In reality, this overlaps with financial materiality and the issues are rarely clear cut.
Triple Materiality adds the lens of context. Triple materiality says we can’t understand the importance of a topic - whether biodiversity loss or worker welfare - unless we consider the setting: where it takes place. Crucially, we can’t judge whether performance on an issue is sufficient unless we also look at things like scientific thresholds, planetary boundaries, environmental thresholds and societal norms. Bill Baue at R3.0 has a helpful post about this here.
In short, triple materiality states that can’t decide if an issue matters unless we view impacts and dependencies in context. That’s why it’s also been called context-based materiality.
A good example is water. An organisation’s impacts and dependencies on water will often vary by place. Hence a global assessment averages out critical risks and opportunities. By breaking down the materiality assessment by geography, triple materiality can shed light on where water really does matter. Applying the lens of scientific thresholds and allocations can enable us to better understand whether the organisation is staying within safe limits for any given area.
Applying Triple Materiality
The challenge for any multinational is that the context varies. Triple materiality means that different issues matter more or less depending on where we are, and where impacts and dependencies are felt. Biodiversity might be critical for one product’s supply chain but freshwater use could matter much more somewhere else. Likewise, social issues like diversity or forced labour have complex geographic patterns. We need global standards, science and norms but we can’t escape the context. The scientific context is vital to judging what’s ‘good enough’ when it comes to corporate performance. Place matters.
Some companies I’ve worked with have already tried to produce ‘local’ materiality matrices. Perhaps in the future we’ll see more of the idea that who is asking and where we are determines the relative importance of the issues.
Dynamic materiality reminds us that the issues change over time. Today’s big impacts after often tomorrow’s financially material ones. Triple materiality adds the crucial insight that we need to be think about space and place. We can’t make sense of corporate sustainability unless we understand context.
There’s more on materiality, including triple materiality, in my new book: Measuring Good Business.
You can also read about the idea of Ethical Materiality (quadruple materiality) here.