Double Materiality
Definition
Double materiality is the principle that companies should report on sustainability matters from two perspectives: how ESG issues affect the company's financial performance (financial materiality) and how the company's activities impact people and the environment (impact materiality). This concept is central to the EU's CSRD and European Sustainability Reporting Standards. It represents a broader view than the single financial materiality approach used by ISSB.
Why It Matters
Double materiality is reshaping corporate sustainability reporting by requiring companies to look outward at their societal impacts, not just inward at financial risks. Understanding this concept is essential for companies preparing for CSRD compliance.
Related Terms
Materiality Assessment
A materiality assessment is a structured process for identifying and prioritising the ESG topics that are most significant to an organisation and its stakeholders. It typically involves stakeholder engagement, peer benchmarking, and analysis of business impact to determine which issues warrant strategic focus and disclosure. The output is usually a materiality matrix ranking topics by importance.
CSRD (Corporate Sustainability Reporting Directive)
The Corporate Sustainability Reporting Directive (CSRD) is EU legislation that significantly expands mandatory sustainability reporting requirements for companies operating in Europe. It introduces the European Sustainability Reporting Standards (ESRS) and requires double materiality assessments, third-party assurance, and digital tagging of reports. The CSRD applies to approximately 50,000 companies, including non-EU companies with significant EU operations.
GRI (Global Reporting Initiative)
The Global Reporting Initiative (GRI) is an independent international organisation that provides the world's most widely used standards for sustainability reporting. GRI Standards help organisations report on their economic, environmental, and social impacts in a structured, comparable way. The framework emphasises stakeholder inclusiveness and materiality.
ISSB (International Sustainability Standards Board)
The International Sustainability Standards Board (ISSB) was established by the IFRS Foundation to develop a global baseline of sustainability disclosure standards for the capital markets. Its inaugural standards, IFRS S1 (General Requirements) and IFRS S2 (Climate-related Disclosures), consolidate and build upon TCFD, SASB, and other frameworks. The ISSB aims to create consistency and comparability in sustainability reporting worldwide.