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  • The sustain:able team

Start with Materiality - and make it double

When developing an ESG strategy, we always recommend starting by defining the material topics that are core to the company, its activities, and environment in which it is operating.

If this process is done in a considered and rigorous way, it will form a solid foundation from which to build a meaningful strategy that can be integrated across the business.


What is materiality?

Materiality has long been a concept in financial disclosures, demarking which pieces of information are important enough to impact on an investor’s decision making.

In response to the work done by the Task Force on Climate-related Financial Disclosures (TCFD), it is now generally accepted that climate-related disclosures can also be considered material in the world of finance (Täger, 2021). This methodology of defining materiality generally considers which factors are likely to have significant impact on an organisation and is determined from an inward facing perspective.

Double materiality extends this coverage to include the organisation’s impact on the world, typically across its own operations and supply chain.

It is fast becoming the new benchmark for sustainability reporting with the European Union’s 2019 Sustainable Finance Disclosure Regulation including double materiality within their disclosures and expectations that it will be included in the UK’s Sustainability Disclosure Requirements (SDR) as well as the EU’s Corporate Sustainability Reporting Directive (CSRD) (Täger, 2021; Deloitte, 2022) .

Trees in a forest

The description of double-materiality in the context of sustainability reporting was first formally defined by the European Union in their 2019 ‘Guidelines on Non-financial Reporting: Supplement on Reporting Climate-related Information’ (Adams, et al., 2021; European Union, 2019). The Global Reporting Initiative (GRI), United Nations Sustainable Development Goals (UN SDGs) and European Union (EU) all have variations on the same core concepts when it comes to defining double materiality.

In 2020 the Global Reporting Initiative (GRI) standards updated its definition of materiality to:

“the organization prioritizes reporting on those topics that reflect its most significant impacts on the economy, environment, and people, including impacts on human rights”

(Adams, et al., 2021).

The Sustainable Development Goals Disclosure (SDGD) Recommendations report from 2020 defines materiality as:

"any information that is reasonably capable of making a difference to the conclusions drawn by: stakeholders concerning the positive and negative impacts of the organisation on global achievement of the SDGs, and; providers of finance concerning the ability of the organisation to create long term value for the organisation and society." (Adams, Druckman, & Picot, 2020).

A person walking through long grass

A 2021 EU Report entitled ‘Proposal for a Relevant and Dynamic EU Sustainability Reporting Standard-Setting’ defines double-materiality as comprising two components: impact materiality and financial materiality.

Impact materiality:

Topics that are material to an entity’s outward impacts across its own operations and value chain and should be based upon the severity, scale, scope and likelihood of both positive and negative impacts as well as the urgency of ‘public policy goals and planetary boundaries’ (European Financial Reporting Advisory Group, 2021).

Financial materiality:

Topics that are likely to affect the value of the entity beyond typical financial reporting (European Financial Reporting Advisory Group, 2021).


Despite its growing popularity the Global Reporting Initiative (GRI) standards are currently the only global reporting framework that fully considers double materiality, expecting organisations to consider material topics from both an inward and outward facing perspective (Adams, et al., 2021).

While the European Financial Reporting Advisory Group (EFRAG) Project Task Force and the Global Reporting Initiative (GRI) announced a Statement of Cooperation in 2021, the GRI was notably not consolidated into the IFRS’ plans for the International Sustainability Standards Board (ISSB) draft proposals and these do not currently include the double materiality concept (Deloitte, 2022).

Rugged coastline

Defining materiality

Conducting a materiality assessment can help improve investment decisions and lead to enhanced financial performance (Adams, et al., 2021). However, this requires a robust and transparent methodology for developing an organisations approach to materiality.

Research has shown that disclosures around an organisation’s methodology for materiality assessments is often insufficient and can lead to false image of sustainability performance.

Several studies have found that organisations

"tend to disclose good performance, ignore poor performance, twist the science and use sustainability reports to legitimate their actions and even mislead their stakeholders" (Adams, et al., 2021).

Organisation reports that fail to disclose how materiality was determined are perceived to be less credible and if the process to determine materiality isn’t robust it can lead to an incorrect and incomplete view of an organisation’s sustainability performance (Adams, et al., 2021).

If an organisation fails to understand the material topics of their different stakeholder groups, then they will be unable to meet their needs. Materiality matrixes can be a useful tool, but they present stakeholders as having unified concerns and a general consensus over material topics which is often not the case with conflicts arising between different stakeholder groups (Adams, et al., 2021).


The benefits of double materiality

Research has shown that focusing on double materiality rather than just financial materiality

  • increases company focus on sustainable development,

  • enhances stakeholder engagement, and

  • improves an organisation’s alignment with the United Nations’ Sustainable Development Goals (UN SDGs) (Adams, et al., 2021).

It is important to consider an organisation’s outward impacts before looking inward, as using an inverse approach can lead to a materiality assessment that lacks depth and only focuses on near term financial implications. This prioritisation can be detrimental both for an organisation’s financial and sustainability performance.

Research has found that

"Identification of matters that are financially material (or material to enterprise value) is incomplete unless the organisation has first identified its material impacts on sustainable development" (Adams, et al., 2021).

However, despite the benefits of considering outward facing impacts and starting materiality assessments from that perspective, there is still a tendency to prioritise financial materiality and focus on financial topics first before considering others (Adams, et al., 2021).


Inclusion of materiality in future reporting disclosures

While both the UK’s Sustainability Disclosure Requirements (SDR) and the EU’s Corporate Sustainability Reporting Directive (CSRD) are set to include disclosures using a double materiality the IFRS’ International Sustainability Standards Board (ISSB) framework so far only has an inward facing perspective on materiality meaning it is still uncertain how far reaching double materiality disclosures will be.



  • Adams, C. A., Alhamood, A., He, X., Tian, J., Wang, L., & Wang, Y. (2021). The double-materiality concept, Application and issues. Global Reporting Initiative.

  • Adams, C. A., Druckman, P. B., & Picot, R. C. (2020). Sustainable Development Goals Disclosure (SDGD) Recommendations. ACCA, Chartered Accountants A NZ, ICAS, IFAC, IIRC and WBA.

  • Deloitte. (2022). The Challenge of Double Materiality, Sustainability Reporting at a Crossroad. Retrieved August 1, 2022, from Deloitte:

  • European Financial Reporting Advisory Group. (2021). Proposals for a relevant and dynamic EU sustainability reporting standard-setting. Brussel: European Reporting Lab.

  • European Union. (2019). Guidelines on reporting climate-related information. Brussel: European Commission.

  • Täger, M. (2021, April 21). 'Double Materiality': what is it and why does it matter? Retrieved August 1, 2022, from The London School of Economics and Political Science:

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