Every leader has been in that meeting where people struggle to agree on fluid concepts, without anyone noticing and without anyone to blame. Let’s take the case of the double materiality assessment component of the Corporate Sustainability Reporting Directive (CSRD) to illustrate the problem.
In March 2026, the new Omnibus I Directive (EU 2026/470) was published, providing firms and member state legislators with a simplified framework for CSRD reporting duties across the EU. While the number of data points firms must report on has been significantly reduced, qualifying firms are still expected to conduct double materiality assessments. The underlying principle of a double materiality assessment is laudable: organizations are invited to think about, map, and report upon how their operations affect their operating environment from two perspectives:
Double materiality assessments start in the boardroom. However, when cross-functional teams get together, the CFO, the COO, the sustainability officer, and the firm’s general counsel are bound to produce different judgments on what materiality, risk, impact, or fairness mean. Not because these executives fundamentally disagree, nor because they hold different information, nor because the concepts they work with are ambiguous or contested, but because materiality, risk, and fairness may have different interpretations due to the professional lens through which each stakeholder views the world. A finance officer interprets an inside-out view and an outside-in view in terms of financial risk. A sustainability officer may think of stakeholder impact before financial impact. For operations, impact refers to process disruption, whereas the legal team sees liabilities.
For example, on the materiality of carbon emissions, the finance team may read such impact as carbon credit exposure, while in operations, they look at process efficiency and report on incremental improvements having been made. Conversely, the sustainability team reads carbon emissions as a Scope 3 reporting obligation. One concept interpreted across three corporate functions leads to three distinct assessments that fail to speak to each other. Likewise, for workforce diversity, HR reads this as a talent pipeline metric. Legal perceives it as anti-discrimination compliance. For finance, the term excludes potential bottom-line exposure, while the sustainability team flags it as a core social impact indicator under ESRS S1. In brief, four distinct interpretations, with structural rather than informational divergence. Each interpretation is justified, yet each triggers misunderstanding in the materiality assessments.
This problem extends beyond the boardroom. Leaders leverage concepts to guide conversations about operations, finance, strategy, culture, and sustainability. Concepts like value, risk, impact, and materiality carry different weight across different applications. Think about how these concepts get carried out of one meeting and into different layers of the organization. Think about how they shape interactions with external stakeholders, how they are interpreted between functional silos, and how they trickle down to the shop floor. It takes clarity and consistency to ensure that words cascade through the organization as they were intended. Messages get distorted in transit and land differently with different people, not because of what is being discussed, but because of who sits at the table. If interpretation is corrupted before the message gets out of the boardroom, misalignment is bound to snowball.
What causes this kind of misunderstanding?
Two elements stand out: what we negotiate about and which role we play when we negotiate. Imagine a negotiation about biscuits. The concept of biscuits seems self-evident. But how certain are we that people around the table each think about biscuits in the same way? Does a dispute about defining biscuits invoke chocolate chip cookies, or do they take butter biscuits as the benchmark, and if we do indeed diverge on what biscuits mean, does that matter?
Let’s replace biscuits with a moral concept, such as fairness, to see how this plays out. Does fairness mean the same thing to you as it does to me, and if there is shared meaning, do we also apply it in the same manner? What if we swap fairness with impact? In the CSRD boardroom discussion example, is anyone wrong in how they interpret impact through their own lens? Business practice is replete with concepts that raise similar questions: strategy, governance, transformation, culture, leadership, AI. Similar terms used to ‘talk shop’ are fluid, and this fluidity triggers asymmetry in discourse without anyone noticing: we start our conversations with fundamentally distinct assumptions, even before we’ve uttered a single word.
Why does that happen? Because we sit around the table with different professional hats: legal counsel is hardwired to see impact through legal argument, inasmuch as operations aligns around process disruption. Concepts are affected by the role we occupy.
Recent research with legal and lay practitioners signals that this interdependence between the concepts we use and how we interpret them through role enables us to recalibrate what a concept means. Value, risk, and impact are not problematic because they are contested, ambiguous, allow for misreading, hinge on information availability, or induce disagreement. Even when we could reasonably resolve any of these issues, the divergence puzzle persists: different people hold different interpretations.
More precisely, in the boardroom different stakeholders are not drawing different lines on the same map – they are scribbling on different maps altogether because people pragmatically recalibrate the interpretation of concepts as the interaction demands.
In my research, I asked lawyers to evaluate whether auctioning off the last available toy to the highest bidder during the Christmas rush is fair. The answer was negative. I then invited them to act as consumer advocates and evaluate whether dynamic concert ticket pricing is fair practice. Despite representing consumers and not the artist, a significant number of practitioners argued that charging excessive prices is fair. This implies that when donning the lawyer’s hat, legal thinking prevails in interpreting fairness, even if it goes against prior personal judgment: dynamic ticket pricing is a legitimate market mechanism that allows for freedom of contract; the consumer determines proportionality, and the practice supports market efficiency rather than price discrimination or exploitation. When we assess things in this way, which is exactly what a double materiality assessment is about, the concepts under evaluation are reshaped through the professional role we are immersed in.
The problem of definition and interpretation mainly arises when materiality assessments are treated as a box-ticking exercise or a strategic coordination problem to be managed.
What makes CSRD assessments structurally contested is that firms may hold competing interpretations as to what impact, value, risk, and sustainability mean, both internally (in the boardroom) and externally (relative to their stakeholders). Likewise, since the directive leaves it to the member states to formalize their interpretation of the reporting process, the same problem emerges: legislators who are now tasked with implementing and enforcing CSRD compliance at the member state level may hold distinct interpretations, which in turn complicates matters for firms reporting across territories. Double materiality assessments produce irreconcilable understandings between stakeholders on what is being assessed, and the directive doesn’t do any of the thinking for firms facing these challenges: companies are left to decide what qualifies as risk, value, and impact for their operations.
How can firms make the compliance effort rewarding? The problem of definition and interpretation mainly arises when materiality assessments are treated as a box-ticking exercise or a strategic coordination problem to be managed. However, a materiality assessment – or any compliance work for that matter – should first and foremost be perceived as a negotiation, and this creates opportunities for value creation.
For the biscuits example, this means jointly figuring out who leans toward chocolate chip cookies and who prefers butter biscuits, who expects gluten-free options, and why that matters.
If the problem can be traced back to a lack of joint understanding, the solution is straightforward: appraise what each ‘hat’ around the table brings to the conversation by untangling how each one interprets what is at stake. By retracing where understanding started to crumble, and exploring what scaffolding of interpretative overlap remains, executives can co-author joint understanding as an explicit process.
What does this unfolding and joint creation look like? In linguistic research, the notion of co-authorship emerged from understanding how children introduce new concepts to each other: A giraffe is a spotted horse with a long neck, love is holding hands and sadness is not getting what you want for Christmas. By leveraging what is known, we can describe and argue over complex concepts. How would you explain AI, strategy, and sustainability to co-workers, or at dinner? Collaborative authorship invites stakeholders to question, contribute to and formalize what value, risk, materiality mean for the assessment on the table.
For the biscuits example, this means jointly figuring out who leans toward chocolate chip cookies and who prefers butter biscuits, who expects gluten-free options, and why that matters. For the consumer advocate case, this means exploring why the market efficiency argument, the freedom of contract, the proportionality discussion matter more in the context of the boardroom, than the toy auction concerns. For the double materiality assessment, this means drawing up which joint features determine impact, and recognizing that the conversation will continue to evolve, as the firm continues to adapt its impact through practice.
Discard formal definitions, but focus on how each understands X through their role.
This is where thinking gets translated in actionable words.
For our firm, materiality means ‘Y’. As the building blocks will form the scaffolding of joint understanding, explicitly mimic the labels your team uses throughout the process to avoid ambiguity or miscommunication.
The outcome does not need to align with formal definitions. Verify if your joint understanding is workable for all. Are you now drawing on the same map or still on different ones? If the latter is true, you have some more collaborative authorship to do.
Discuss how you read and understand these formal definitions. To what extent do they align or diverge with what has been said in the room? You are now evaluating them as a team against your joint understanding.
The building blocks that may surface for materiality across corporate roles:
None of these building blocks make up materiality, but allow for negotiation on weight and co-authorship on what materiality could mean for the assessment: does severity matter more than likelihood? How broad is ‘scope’? How significant is significance for our organization?
The outcome of that negotiation determines the boundaries of the assessment.
Businesses protect operations by evaluating risks, but the concepts that underlie these risks should not be perceived as stable or defined by objective criteria. In practice, we derive predictive power from metrics that are subject to interpretation and open to recalibration. The consumer advocate in the example above evaluated how fairness was interpreted on the basis of a fluid set of criteria.
Beyond a compliance effort, a double materiality assessment is an invitation to co-author strategic clarity to demonstrate that all voices were understood. Misunderstanding in the boardroom should not be read as failure but as a diagnostic that more conceptual work is required to create value and direction, for the firm and its environment.
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