Double materiality still lacking from Pension goals

November 3, 2022

The pensions industry needs to pull its finger out and embrace the concept of ‘double materiality’ in order to pull its weight when it comes to meeting sustainability goals.

That is the view of Dr Carol Adams, a professor of accounting at Durham University who champions the importance of ESG investing.

Double materiality is an accounting standard used to describe the double impact of investment on financial and societal issues.

It relates to the push for companies to simultaneously focus on improving their profit margins along with the world in which it operates.

It was central to a recent debate on single versus double materiality by Investment & Pensions Europe (IPE) for an audience of Europe’s large pension funds.

The European Commission (EC) backs the use of double materiality and there were calls last year for the European Insurance and Occupational Pensions Authority (EIOPA) to assess its benefits within the pension framework - not least by Dr Adams.

In an article titled ‘Why double materiality is important to pension funds’ on her website, she wrote: “The EC stated at the time that introducing a double materiality approach would help encourage the industry to instil the action to meeting sustainability goals.

“Despite the clear advantages - more than a year later - it seems we are still debating its value.

“But such a move is vitally important. Whether focusing on wider environmental issues or day-to-day social concerns, the route towards building a truly sustainable future is one which must be travelled by all parties together – government, industry and society.

“By championing a double materiality approach, pension funds can help companies advance their efforts towards Sustainable Development Goals contribution.

“It will encourage them to consider the impacts of sustainable development issues from two standpoints - for their organisation and also on their organisation.”

Dr Adams would also like to see the International Financial Reporting Standards Foundation (IFRS) and International Sustainability Standards Board (ISSB) place more emphasis on the wider benefits of ESG investing.

She added: “The IFRS Foundation and the ISSB consider the impacts of sustainable development on the organisation to the extent that matters are financially material and effect enterprise value.

“But many companies think of ‘value’ much more broadly and consider how sustainable development risks and opportunities create value – not only for stakeholders but for society and the environment, as well as the organisation.

“They, quite rightly, recognise that creating value for the organisation involves thinking beyond cash flows and enterprise value.”