Double materiality
Double materiality is the principle that a sustainability topic is material if it matters from either of two angles: the company's impact on people and the environment (impact materiality), or the topic's financial effect on the company (financial materiality).
It is the starting point of any report under the CSRD. The European Sustainability Reporting Standards (ESRS) ask companies to run a double materiality assessment, then to report only on the topics found material, plus the general disclosures every company must publish.
Impact materiality looks outward: actual or potential, positive or negative effects of the company's operations and value chain on people and the environment. Financial materiality looks inward: risks and opportunities that affect, or could reasonably affect, the company's cash flows, cost of capital or access to finance. A topic material from one angle only is still material.
The assessment works through impacts, risks and opportunities (IROs), scored on severity and likelihood. It needs documented stakeholder input and a clear method, because the assurance provider will check how the conclusions were reached.
Go further
- Preparing for CSRD - Understanding the genesis of Double Materiality
- Impact Materiality - The first steps of CSRD reporting
- Financial materiality - Detecting climate-related risks, dependencies and opportunities
- Double Materiality in VSME: Simplified Method for SMEs