Introduction to Double Materiality in Urban Sustainability
by Sergej Lugovic
Double materiality is a concept that has become increasingly important in the context of sustainability reporting, especially for cities and urban areas. It recognizes that sustainability issues can be significant from two distinct perspectives: impact materiality (inside-out) and financial materiality (outside-in). Understanding and applying double materiality is essential for cities that aim to navigate the complex challenges of urban transformation while ensuring long-term sustainability and resilience.
What is Double Materiality?
Double materiality refers to the dual perspective from which sustainability issues are assessed:
Impact Materiality (Inside-Out): This perspective focuses on how a city’s activities, policies, and decisions impact the environment, society, and the economy. It considers the effects of urban planning, development, and operations on the community, including environmental degradation, social inequality, and economic disruption. Cities must identify which sustainability issues are material based on their potential to cause significant harm or benefit to the urban environment and its inhabitants.
Financial Materiality (Outside-In): This perspective examines how external sustainability-related risks and opportunities can impact the financial health and stability of a city. It includes factors like climate change, resource scarcity, and regulatory changes that may affect the city’s budget, investments, and economic growth. Financial materiality helps cities understand the potential financial consequences of sustainability challenges and opportunities, guiding them in making informed decisions.
Why is Double Materiality Important for Cities?
Cities are complex ecosystems that face a wide range of sustainability challenges, from climate change and pollution to social inequality and economic instability. By adopting a double materiality approach, cities can:
Holistically Assess Risks and Opportunities: Double materiality enables cities to consider both the impact of their actions on the environment and society, and how external sustainability risks and opportunities can affect their financial stability and growth.
Align Urban Planning with Sustainability Goals: By integrating double materiality into urban planning, cities can ensure that their development strategies are aligned with sustainability goals, leading to more resilient and livable urban environments.
Enhance Stakeholder Engagement: Understanding both impact and financial materiality helps cities engage more effectively with stakeholders, including residents, businesses, and policymakers, by addressing their concerns and expectations.
Support Long-Term Decision-Making: Double materiality provides cities with the insights needed to make strategic decisions that balance short-term financial goals with long-term sustainability objectives.
The Role of Feedback Loops in Double Materiality
Feedback loops are critical in the double materiality framework, ensuring that cities continuously refine their understanding of material issues and adjust their strategies accordingly. For instance:
Impact to Financial Feedback Loop: The impacts of a city’s activities on the environment and society (impact materiality) can create financial risks or opportunities (financial materiality). For example, poor air quality resulting from urban pollution can lead to higher healthcare costs and reduced economic productivity, thus creating a financial burden for the city.
Financial to Impact Feedback Loop: Conversely, financial pressures, such as budget constraints or economic downturns, can lead cities to make decisions that have significant social or environmental impacts. For example, cutting funding for public transportation could increase carbon emissions and reduce accessibility, exacerbating social inequality.
These feedback loops highlight the interconnected nature of impact and financial materiality, emphasizing the need for cities to adopt an integrated approach to sustainability.
Positioning Financial and Impact Materiality in Urban Context
In the urban context, both financial and impact materiality are intertwined and must be addressed concurrently. Cities must assess:
Impact Materiality: How urban development projects, infrastructure upgrades, and policy changes affect the environment, social fabric, and economic vitality of the city. This might include the effects of gentrification, the loss of green spaces, or increased energy consumption.
Financial Materiality: How external factors, such as climate change, regulatory shifts, or technological advancements, impact the city’s finances. Cities need to consider the costs of adapting to climate change, the potential for green investments, or the financial implications of new sustainability regulations.
By positioning financial and impact materiality within their strategic planning, cities can create a more resilient and sustainable urban future. So we deep dive into the UP2030 concept of 5UP approach and reflect them toward the double materiality reporting (based on Dragomir et al. (2024) and Dumitru et al. (2023).
Establishing Impact Materiality through Stakeholder Engagement
UP-SKILL
Process: The "UP-SKILL" phase is centered on building capacities and resources for urban planning and design transformation pathways. It involves upskilling the entire stakeholder ecosystem, including residents, government agencies, businesses, and community groups. Through training sessions, workshops, and collaborative projects, stakeholders gain the knowledge and skills needed to co-develop and implement sustainable urban planning initiatives.
Outcome: The engagement process identifies key sustainability impacts, risks, and opportunities from diverse stakeholder perspectives, which are then classified as material based on their relevance to urban transformation.
Establishing Financial Materiality by Identifying Risks and Opportunities
UP-SCALE:
Process: The "UP-SCALE" phase focuses on extending solutions across scales and integrating them across different sectors. It involves shaping governance arrangements and aligning projects with available financial resources. The city assesses sustainability-related risks and opportunities that could have financial implications, such as the economic viability of large-scale urban renewal projects or the financial risks of climate change on infrastructure.
Outcome: Financial material risks and opportunities are identified, such as the costs of scaling up sustainable urban projects or the potential returns from green infrastructure investments, and prioritized based on their potential impact on the city's financial health.
Disclosure of Materiality Determination Thresholds
UP-TAKE:
Process: In the "UP-TAKE" phase, the city supports the uptake and outreach of the implementation through knowledge transfer. This phase also involves establishing and disclosing the thresholds used for determining materiality, focusing on the scale and scope of urban issues, as well as their potential financial impact.
Outcome: The city transparently communicates the criteria and thresholds for materiality determination, ensuring that stakeholders understand how decisions are made and what issues are prioritized.
Negative Impact Materiality
UP-GRADE:
Process: The "UP-GRADE" phase involves prototyping urban transformation at a suitable physical scale in pilot cities. This includes renewing urban planning and design practices to address identified sustainability challenges. The city assesses and discloses negative impacts such as environmental degradation or social displacement that could result from urban development projects.
Outcome: The city discloses significant negative impacts, such as the potential loss of community cohesion due to large-scale redevelopment, and provides detailed analysis of the scale, scope, and irremediable character of these impacts.
Positive Impact Materiality
UP-GRADE:
Process: The "UP-GRADE" phase also highlights the positive impacts of urban transformation, such as the creation of green spaces, improved public amenities, and more sustainable urban layouts. These prototypes demonstrate the potential benefits of adopting new urban planning and design practices at scale.
Outcome: The city discloses positive impacts, such as the enhancement of public health and well-being due to increased access to green spaces, and outlines the potential for further positive outcomes as the prototypes are scaled up.
Disclosure of Material Impacts, Risks, Opportunities, and Related Actions
UP-DATE:
Process: The "UP-DATE" phase focuses on identifying which processes, planning codes, and policies need urgent updating, in line with the EU Cities Mission vision. This phase addresses barriers and aligns urban planning with the latest sustainability goals. The city discloses the material impacts, risks, and opportunities identified, along with the actions taken to update and improve urban planning frameworks.
Outcome: The city provides comprehensive disclosures on the updated policies, codes, and governance arrangements that support sustainable urban transformation, ensuring that material issues are addressed through effective urban planning strategies.
Time Frame
UP-TAKE & UP-DATE:
Process: Both "UP-TAKE" and "UP-DATE" phases involve establishing time frames for the implementation of updated urban planning and design strategies. The city sets out short, medium, and long-term goals for addressing the identified material issues, with specific timelines for updating policies and scaling up urban solutions.
Outcome: The city discloses clear timelines for key urban transformation initiatives, such as the immediate update of outdated planning codes, the medium-term goal of scaling sustainable practices across neighborhoods, and the long-term aim of achieving city-wide sustainability objectives.