A sustainability issue is considered material if it meets the criteria for impact materiality or financial materiality, or both. In addition, a company should make additional entity-specific disclosures to provide insight into the impacts, risks and opportunities if it believes that a sustainability issue is material but is not, or not sufficiently, ‘covered’ by a specific ESRS.
If a topic is material, the company should disclose all relevant information. If a topic is not material and therefore does not meet the relevant disclosure requirements of a current ESRS, the company briefly explains the reasoning behind its materiality assessment of the topic. This makes dual materiality the criterion for determining whether information should be included in the sustainability report. It also determines the number of data points and performance indicators to be reported.
A company complies with the sustainability reporting requirements if it discloses all material information. Therefore, even if the company is not (fully) sustainable, it can still comply with the CSRD and ESRS. As long as the sustainability report accurately reflects how sustainable the company is.
Impact materiality versus financial materiality
Double materiality has two dimensions: impact materiality and financial materiality.
Impact materiality
Impact materiality represents the inside-out view of materiality, in which the impact the organisation has on society is the starting point. The inside-out view consists of
- Assessing the organistion’s impact on environment & society
- Organisations can uwe this perspectief to determineren where they can increase their positive impact and mitigatie their negative impact.
Financial materiality
Financial materiality represents the outside-in view of materiality, in which the impact society has on firm operations is the starting point. The outside-in view consists of:
- Assesing the impact of environmental & sociaal aspects on the organsation
- These aspects can influence the financial performance, both positive and negative, thorugh opportunities and risks.
Double materiality assessment
The double materiality assessment can be divided into five phases. First, the scope and objectives of the assessment will be determined. In this phase, it is defined what materiality means for the organisation. Next, the potential and actual risks, opportunities, and impacts from both a financial and impact perspective will be identified. In phase three, an assessment is performed to identify topics that appear material from an impact perspective and/or from a financial perspective. The validation phase engages with both internal and external stakeholders to validate the findings in the assessment phase. Lastly, the results and processes undertaken will be documented in the governance phase.
Double materiality deliverables
| Mapping internal and external stakeholders Involvement and various ways to engage with them | Pre-engage with stakeholders To familiarise with materiality concept | Run materiality assessment by indicatively scoring materiality for each topic From a financial and impact materiality perspective | Validate preliminary materiality matrix with key stakeholders Challenge decision makers with initial materiality results, determine whether discretionary overrides are required (ESRS) | Documenting results and the decision-making process Clear audit trail |
| Select which ESG themes are likely to be material Based on ESRS topics and industry benchmarks | Pre-identify potential and actual impacts, risks, and opportunities From a financial and impact materiality perspective | Gather insights from stakeholders Through workshops, interviews, and/or surveys | Process results into a final double materiality matrix With underlying financial and impact materiality assessments serving as foundation | Cluster ESG themes to determine next steps for the organisation Material topics can create new impact, risks or opportunities on which the organisation might wish or need to act on |
| Prepare materiality framework, surveys, and scoring tools | Construct materiality matrix Preliminary plot |
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