The Definition of Double Materiality

Definition of Double Materiality

Double materiality is an approach to deciding which sustainability topics a company must report. A topic is material if it meets either of two tests:

• Impact materiality (inside-out): the company's activities have significant actual or potential impacts on people or the environment.
• Financial materiality (outside-in): the topic creates significant risks or opportunities for the company's cash flows, performance or access to finance.

Double materiality is the foundation of reporting under the EU's CSRD and is closely aligned with the impact focus of the GRI Standards.

How a Double Materiality Assessment Works

• Map the value chain and list potential sustainability topics.
• Engage stakeholders, including workers, customers, communities and investors.
• Score impacts by severity (scale, scope and how hard they are to remedy) and likelihood.
• Score financial effects by magnitude and likelihood.
• Set thresholds, document decisions and have them reviewed by leadership.

Example of Double Materiality

A construction company assessed worker safety. From an impact view, fatal and serious injuries to employees and subcontractors were highly severe. From a financial view, incidents affected project delays, insurance premiums and the ability to win tenders. Safety was therefore material on both counts.

Frequently Asked Questions: Double Materiality

How is double materiality different from single materiality?

Single (financial) materiality, used by the ISSB standards, considers only effects on the company. Double materiality adds the company's effects on the world.

Can EHS risk assessments feed into it?

Yes. Existing risk registers and risk matrices provide useful evidence on severity and likelihood.

How often should it be updated?

Usually annually, or when there are major changes to the business.