Jul 7, 2023

Double Materiality Simplified | Why, What and How of Double Materiality?



Double Materiality Simplified | Why, What and How of Double Materiality?


Double materiality is a central concept in European sustainability reporting, shaping how companies disclose their impact on and from environmental and social issues.

The Concept of Double Materiality

Double materiality requires companies to report both on matters impacting their financial position and their impacts on society and the environment. This contrasts with the "single" materiality framework focused primarily on financial impacts, as practiced in the U.S.

Significance in European Reporting Standards

The EU Green Taxonomy and Guidelines on Reporting Climate-Related Information confirm double materiality as the basis for non-financial information disclosure. The EU’s Corporate Sustainability Reporting Directive (CSRD) will also incorporate this concept.

Global Reporting Initiatives and Double Materiality

The European Financial Reporting Advisory Group (EFRAG) is working with the Global Reporting Initiative (GRI) on developing CSRD standards. The GRI, known for its focus on double materiality, influences this collaboration, emphasizing corporate responsibility towards broader societal interests.

The Role of International Bodies

The International Sustainability Standards Board (ISSB), established by the IFRS Foundation, is set to become a leading standard for sustainability reporting. While it currently focuses on financial materiality, European regulators urge a shift towards double materiality, encompassing both financial and impact materiality.

Bridge between Single and Double Materiality

Frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) and financial institutions' commitments (e.g., Glasgow Financial Alliance for Net Zero) are creating convergence between single and double materiality, particularly regarding climate change impacts.

EU's Stance and Global Implications

Despite the global appeal of IFRS standards focusing on financial materiality, the EU maintains its commitment to double materiality, influencing global sustainability standards and encouraging a broader approach to corporate impact assessment.

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