Double materiality is a concept in sustainability reporting that acknowledges the dual perspective of materiality:

1. Financial Materiality:
This perspective focuses on how environmental, social, and governance (ESG) factors impact a company’s financial performance. For instance, climate change can pose risks to a company’s operations, potentially affecting its profitability and valuation.

2. Impact Materiality:
This viewpoint considers how a company’s operations affect the environment and society. It emphasizes the company’s responsibility towards its stakeholders and the broader community, assessing the positive and negative impacts it generates.

The European Commission introduced the concept of double materiality in its 2019 guidelines on non-financial reporting. This approach has been further reinforced by the Corporate Sustainability Reporting Directive (CSRD), which mandates companies to disclose information on significant sustainability matters from both financial and impact perspectives.

In practice, double materiality requires organizations to assess and report on:

• How sustainability issues affect the company’s financial health: For example, regulatory changes related to carbon emissions may lead to increased costs or necessitate changes in business operations.

• How the company’s activities impact the environment and society: This includes evaluating factors such as resource consumption, waste generation, labor practices, and community engagement.

By adopting a double materiality approach, companies provide a more comprehensive view of their sustainability performance, offering valuable insights to investors, stakeholders, and society at large. This holistic perspective ensures that both the financial implications of ESG factors and the company’s broader societal impacts are transparently communicated.

For more detailed information on double materiality, you can refer to resources provided by organizations like the Global Reporting Initiative (GRI) and the European Financial Reporting Advisory Group (EFRAG).