Materiality: what is it, and why are we doubling it?
marigold melton
marigold melton

Double-materiality assessments have been mandated by the EU’s incoming Corporate Sustainability Reporting Directive (CSRD) and the GRI 2021 Standards. They stipulate that companies need to consider both impact and financial materiality. 

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What is materiality?

Materiality revolves around the notion that not all sustainability concerns hold equal weight; it offers stakeholders information about the topics that are more significant and pertinent.

Assessing what is material

A materiality assessment is a process used by organisations to identify, evaluate and prioritise their most significant environmental, social and governance (ESG) issues or impacts. By determining which issues are “material” to the company and its stakeholders, it can inform sustainability strategies, reporting and communication approaches, and resource allocation. It is also crucial for shareholders as it helps them gauge the significant risks and opportunities that can impact the company’s financial performance, reputation and long-term value. 

How are businesses reporting on materiality? 

The expectations of materiality assessments have progressed from “stakeholder-led” to more “impact-led” assessments over the last few years.  

Traditionally, the focus was on stakeholder-led materiality, concentrating on what matters to internal or external, and what could impact the business’ bottom line. However, this approach may not capture the full view of sustainability-related issues that could impact a company. 

By 2023, the focus shifted to impact-led materiality, examining a company’s influence on the economy, environment, and society for the benefit of stakeholders. It assesses the potential risks and opportunities that sustainability-related issues can bring to a business while acknowledging the needs of various stakeholders. 

However, we are at a turning point, and the emphasis and concentration are once again pivoting – this time to “double materiality”.  

What is double materiality?

This concept looks at both impact materiality and financial materiality. Financial materiality builds on impact materiality by examining information about the economic value creation of sustainability-related matters for the benefit of investors and shareholders.  

Double-materiality assessments have been mandated by the EU’s incoming Corporate Sustainability Reporting Directive (CSRD) and the GRI 2021 Standards. They stipulate that companies need to consider both impact and financial materiality. 

CSRD extends reporting requirements to more companies, aiming for consistency and comparability in reporting across the EU. Therefore, even if you aren’t currently reporting under NFRD, you may soon be expected to report under CSRD. 

The advantages of double materiality

Even for businesses not required to report under the CSRD, embracing double materiality provides a strategic advantage.

Conducting a thorough assessment of both financial and impact materiality offers a holistic view of a company’s sustainability landscape. This approach enables comprehensive risk and opportunity mapping and positions businesses to proactively address risks, capitalise on opportunities and foster resilience in an evolving market. Embracing double materiality goes beyond compliance; it’s a proactive strategy for informed decision making, stakeholder engagement and long-term value creation. 

Ready to get started?

So, are you prepared to take your materiality assessment to the next level?

Reach out to us now to find out more about double materiality and how you can elevate your sustainability reporting to the next level.  

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