Global shift

Geopolitical tensions and growing disagreements over climate targets have slowed the development of sustainability regulation globally. In the United States in particular, the political backlash linked to so-called "woke capitalism" accusations has led some asset managers to withdraw from publicly stated sustainability commitments.

Despite this, sustainability reporting continues to advance globally. The adoption of the global sustainability reporting standard developed by the IFRS Foundation has expanded nationally to over 40 countries and regions, including China and Japan.

EU policy

The European Union is simplifying and moderating the sustainability reporting requirements for companies and financial actors to reduce administrative burden, without compromising the materiality or quality of reporting.

Despite pressures, the majority of large companies continue sustainability reporting and require the delivery of sustainability data from their subcontractors as well. Sustainability is seen as a key part of companies' long-term growth and competitive strategy.

Investor demands

European investors in particular require comprehensive, comparable and transparent sustainability data to support their investment decisions. In the United States as well, significant institutional investors, such as the New York City pension funds, require their asset managers to commit to climate and emission reduction targets.

Traditional sustainability ratings and the array of data points have not answered the real question investors have: "How sustainable are my investments today and tomorrow?" Instead, they have offered oversimplified answers to complex problems.

Investors' interest in measurable impact is growing. Capital is increasingly being directed to targets that support the investor's purpose and promote the achievement of set sustainability goals. The opportunity to make an impact through the investment portfolio exists, but how?

Double materiality

Companies and large investors are increasingly building their strategies on the double materiality assessment of sustainability factors. The assessment covers, on one hand, impact materiality, i.e., how the company's operations and investment portfolio affect climate, environment and people, and on the other hand, financial materiality, i.e., how climate, environment and people affect the long-term value development of the company and portfolio.

However, double materiality is not only a tool for large corporations or major investors. The same approach offers other investor entities a structural and purposeful way to identify the most material sustainability topics and select the metrics that are most meaningful for their purpose.