5.1 Double Materiality
In module 3 we examined materiality from an impacts perspective, and in module 4 we learned about materiality from a financial effects perspective.
Both materiality perspectives are not mutually exclusive –impacts are likely to cause financial effects, such as in the case of environmentally-related fines, loss of market share due to reputational damage, and higher recruitment costs due to poor workplace culture.
An organisation’s response to manage an impact could also create a risk or opportunity, or another impact.
When an organisation assesses materiality from both perspectives, it is referred to as ‘double materiality’. A double materiality assessment acknowledges that organisations can affect, and be affected by, sustainability topics. A double materiality assessment, when undertaken to best practice standard, facilitates effective ESG topic management and reporting.
Most jurisdictions that have introduced legislative requirements for sustainability reporting have a single focus on financial materiality, and organisations are only expected to consider the materiality of the topic of climate change.
The European Union (EU) is the first jurisdiction to mandate double materiality sustainability reporting for organisations that meet certain thresholds, through its Corporate Sustainability Reporting Directive (CSRD). Organisations that are mandated to disclose sustainability related information must use the European Sustainability Reporting Standards (ESRS) to meet the requirements of CSRD. The ESRS has a great deal of interoperability with GRI and ISSB; organisations that are already adhering to GRI and / or the ISSB’s approaches to materiality and reporting will find great alignment with what is expected under the ESRS.
See slide 8 for an overview of jurisdictions that have introduced, or are in the process of introducing, legislative requirements for ESG reporting.
