Double Materiality and the Future of Sustainable Supply Chains.

The global drive for sustainable supply chains is at a crossroads. New, ambitious regulations are clashing with rising political pushback, creating uncertainty for businesses worldwide. At the heart of this tension is double materiality, a concept that urges companies to look beyond just profits and deeply consider their environmental and social impact.

But as governments hesitate on disclosure laws, are forward-thinking executives missing a crucial point? The real imperative is building inherently responsible, resilient supply chains that can thrive long-term, no matter how regulations change.

Shifting Political Winds for DIsclosure laws.

Europe has been a leader in embracing double materiality, which assesses both a company’s financial performance and its broader impact on society and the environment. However, the principle is facing political headwinds.

Just last month, leaders from France and Germany called on the European Union to scrap its new supply chain disclosure law, the Corporate Sustainability Due Diligence Directive (CSDDD). German Chancellor Friedrich Merz initially pushed for the law—which mandates that larger EU companies verify their supply chains are free of forced labor and environmental damage—to be scrapped. Ten days later, French President Emmanuel Macron echoed this sentiment, citing concerns about the bloc's economic competitiveness against the United States and China.

While Germany's government later softened its stance following the European Parliament's decision to delay the CSDDD's implementation until 2028, the events highlight the ongoing global debate around sustainable supply chain regulations. Similar discussions and initiatives are unfolding worldwide, each with its own nuances.

ESG in Transition.

Environmental, Social, and Governance (ESG), a framework that emerged two decades ago, has been the dominant principle guiding corporate sustainability and disclosure requirements globally.

A recent Conference Board survey revealed that 80% of sustainability executives in the United States are adjusting their ESG strategies due to policy changes, with 52% rephrasing their sustainability messaging to move away from the term "ESG." Tariffs also pose a challenge, with 66% of executives believing they will hinder sustainability progress, and 45% expecting delays in investments in sustainable operations. 

The survey also indicates that 90% of executives anticipate the ESG backlash to persist or intensify, a significant increase from 63% two years ago. The primary targets of this backlash are climate-related commitments and ESG-related language.

The Power of Double Materiality.

In his Harvard Business Review article last October, "Moving Beyond ESG," University of Oxford professor Robert G. Eccles suggests less handwringing over terms and refocusing on the core question: What does it truly mean to be a responsible business in society?

Globally, European countries and U.S. progressives generally advocate for regulations enforcing double materiality, believing it allows companies to acknowledge both positive contributions and accountability for negative consequences, Eccles says. In contrast, U.S. conservatives and many corporate executives favor single materiality, arguing that double materiality is neither feasible nor warranted.

Double materiality attempts to measure a company's societal impact by accounting for both the positive and negative externalities it creates—those effects that don't always directly impact financial performance but contribute to a better or worse world. It's a forward-looking tool for tracking a business's commitment to responsibility.

Data from the S&P’s most recent Global Corporate Sustainability Assessment, which covers 12,000 companies, shows that about two-thirds of companies publicly disclose their materiality determination process. Nearly half (48%) of assessed companies globally state their approach is based on double materiality. 

However, only 46% of companies that identify external stakeholder material issues have developed metrics to track their environmental and social impact. It turns out that measuring societal materiality is quite hard.

"Double materiality hits businesses square in the face," says Sallie Burke, head of Minneapolis-based supply chain strategy consultancy End2End Solutions LLC. "But it's not always a black-and-white world for supply chain executives weighing tough decisions that involve consumers, employees, financials, politics, government incentives, fines, etc. There are a lot more factors involved in sustainable supply chains than most people would expect."

She encourages supply chain executives to move beyond the notion of "there are always trade-offs" and instead get the information they need to make the best long-term decisions for people, the planet, and their business. 

For example, while electric vehicles generally have a higher sticker price than comparable cars, their lower fuel and maintenance costs can make them a better long-term financial and environmental investment. This simple example illustrates the principle, but applying it to global supply chains demands extensive data and complex calculations, Burke says. And she emphasizes that factoring in a longer time horizon can reveal a different return-on-investment story altogether. 

What’s on Your Company’s Dashboard?

It's vital for businesses to step back and assess their material risks by considering their impact on nature and people. Regardless of whether you use ESG, double materiality, or another framework, sustainability is more relevant than ever, with many businesses integrating environmental concerns into their core missions and values.

Surveys show again and again that their customers want sustainability and transparency. Consumers are willing to pay a 9.7% sustainability premium, even as cost-of-living and inflationary concerns weigh, according to PwC’s 2024 Voice of the Consumer Survey. And employees gain pride and satisfaction from seeing how their work is helping improve lives and better the environment.

The goal is to use robust tools to anticipate negative outcomes and maintain sustainable supply chains. These risks should be tracked and monitored alongside financial metrics. Proactive, responsible business practices are essential, regardless of regulatory shifts.

Companies that embrace double materiality practices are better positioned to:

• Anticipate future regulations.

• Mitigate reputational and operational risks.

• Attract increasingly conscious consumers, employees, and investors.

While governments continue to debate the feasibility and scope of mandatory disclosures, forward-thinking executives recognize a deeper strategic truth. The conversation extends far beyond mere compliance; it’s a fundamental re-evaluation of what defines a responsible and resilient business in the new economy. 

Companies that genuinely understand and address their profound impact on people and the natural world in their supply chains aren't just following trends; they are building foundational resilience, effectively managing critical risks, and securing long-term value for all stakeholders. In can be hard. But it’s worth the investment.

Erik Brand is the External Affairs + Stakeholder Relations Lead at DevryBV Sustainable Strategies.