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Comprehensive Guide To Double Materiality in ESG & Sustainability


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The EU’s Corporate Sustainability and Reporting Directive (CSRD) is making waves in the world of sustainability and ESG. With new reporting requirements under the CSRD starting in 2024, one topic that has become of particular interest is that of double materiality.

Put simply, double materiality is the idea that: 

  • the impacts of an ESG matter (like climate change) can affect an organization’s activities in a material way; and 
  • the impacts of an organization’s activities can affect an ESG matter in a material way.

While this might sound simple, undertaking a double materiality assessment is quite complex, and it’s also the source of some debate.

In this guide, we provide a comprehensive overview of double materiality by looking at its definition, why it matters, why it’s debated, how it’s viewed by the EU, and how organizations can incorporate double materiality into their ESG and sustainability programs.

Let’s get started, beginning with a deeper dive of what double materiality is.

What Is Double Materiality?

While there is yet to be a universally accepted definition of double materiality in the ESG and sustainability world, the underlying concept comes from the widely-accepted financial definition of materiality.

In accounting, something is considered ‘material’, if it is “reasonably likely to impact investors’ decision-making”. In this case, it must be recorded or reported in detail. 

In other words, material information is information so critical to the organization that it can’t be omitted from reporting, otherwise it would impact an investor’s ability to make a decision. 

Under this definition of materiality, what gets determined as material versus immaterial will vary based on the organization. Something that is material for a small business might be immaterial for a large enterprise due to relative size. 

For instance, if a small business with a revenue of $200,000 per year purchases a piece of equipment for $20,000, this would be material information. On the other hand, for a large business with $2 billion in revenue per year, a $20,000 purchase may be immaterial.

Materiality has been applied to promote reporting of both financial and non-financial information related to a company’s ESG and sustainability activities. Double materiality goes a step further by inciting organizations to look at a two-way street: how external ESG matters impact them and how they impact ESG matters either directly or up/down the value chain. 

Double materiality can relate to any dimension of ESG, though typically the conversation is around climate change. With climate risk increasing, so are the regulatory requirements to report on climate-related topics.

Another important point to note about a double materiality approach is that it sees more than just investors as stakeholders. It also sees the public as an audience that organizations are responsible to.

Why Is Double Materiality Important?

A major critique of ESG and sustainability programs of the past is the lack of stringent reporting requirements, which sometimes resulted in organizations greenwashing their efforts. 

Double materiality requirements try to change this by demanding that organizations report in a manner that’s transparent, reliable, and data-driven. Double materiality says that anything in the ESG space that has a material impact needs to be included in reports and disclosures to investors and other stakeholders.

The idea is that by requiring a higher degree of transparency, companies will be compelled to take ESG seriously, as well as transition to net zero to limit global warming by 2030.

What Is a Double Materiality Assessment?

A double materiality assessment is defined as an assessment that helps organizations determine which sustainability and ESG matters are material to themselves and their stakeholders. A materiality assessment helps organizations establish its ESG strategy and prioritize its activities. 

Part of a double materiality assessment involves looking at activities that are occurring upstream or downstream along the value chain. For instance, if a company purchases its electricity from a coal plant, this poses a material risk for the company even though they may not be directly responsible for the environment and climate impact from the coal plant.

On the other hand, if that company decided to switch to a clean, renewable energy source, this would also result in double materiality considerations. It may pose a financial risk in the short term, but could result in overall financial gains over time and a positive impact on their nearby communities and the overall global climate.

Examples of Double Materiality in Different Industries

Double materiality encourages companies to look both inward and outward at how their practices impact ESG issues and vice versa. Here are a few examples of how taking a double materiality approach can result in positive ESG change:

  • Financial sector: A bank decides to lend only to corporations that are not causing harm to the environment. This improves the bank’s performance and public perception and lowers risk, while also supporting a healthier environment.
  • Professional services: An accounting firm implements a wellness program for their employees which improves their health and wellness. In turn, this helps the firm retain current employees, recruit new employees, and lower absenteeism.
  • Manufacturing: A manufacturer switches to using a clean, renewable energy source. This contributes to net zero goals, improves the air quality of their communities, enhances brand value and reputation, and also reduces costs over time.
  • Retail: A clothing company assesses its upstream and downstream value chain and switches to vendors that use fair labor practices. This leads to gains for workers, while also reducing their risk of public backlash for poor business practices.
  • Agriculture: A farm implements a new system to capture and use rainwater for their crops, meaning less draw on the local water supply and reduced costs over time.
  • Energy: An energy producer that relies heavily on fossil fuels invests in R&D to find options for transitioning to renewable energy production. This ultimately contributes to meeting global net zero targets, while also appealing to investors who are looking to make a positive environmental impact.
  • Education: A university reviews its gender and diversity policies to ensure it’s operating in an inclusive manner. The university becomes more accessible to historically marginalized groups, which benefits students, employees, and its reputation.

The Debate About Double Materiality

Despite its promise, double materiality has been the source of debate and controversy. This is largely due to its abstract and undefined nature. Here’s a brief summary of some of those issues:

  • Lack of standardization: The first reason double materiality is controversial is because there are many different ways to approach it. As mentioned earlier, things that are considered material for one organization may not be considered material for another. As a result, reporting on double materiality is ripe for interpretation and potential greenwashing.
  • Questions around who the audience is: Secondly, determining who disclosures are for is tricky and debated. Historically, reports of material items in financial disclosures were aimed at investors only, who had very specific needs and interests, and who knew how to interpret long, complex financial reports. However, the nature of, and intent behind, double materiality widens the audience. A corporation’s activities could have a positive impact on their balance sheet, but a detrimental impact on the environment, as an example. This means a wider variety of investors are looking for information, along with non-profits, employees, labor unions, local communities, and the general public. Providing lengthy financial data isn’t the easiest to access for many of these audiences. What should these reports look like? And who should they be aimed at?
  • Unclear what material means: Finally, determining what activities are considered as having material impact on the environment, climate, or any other ESG issue is proving difficult and complex. Do impacts become material only if they matter to investors? Or, as many people have proposed, should the stakeholders be widened to include the general public? If it’s the latter, impacts would become material if they matter to a ‘reasonable person’. But what is a ‘reasonable person’ exactly? To some extent, determining this involves a level of subjectivity.

That being said, organizations like the International Financial Reporting Standards Foundation (IFRS), which sets accounting standards for 120 countries globally, are trying to address double materiality challenges in the financial industry by requiring specific disclosures. Their work through the International  Sustainability Standards Board (ISSB) has made it widely accepted that materiality should include climate-related and ESG-related issues. This is a start, but there is still work to be done within and outside the financial sector.

Similarly, in the EU, the new Corporate Sustainability Reporting Directive (CSRD) offers a more robust financial disclosure regime for financial organizations and corporations. Let’s dive deeper into this by looking at how the EU is approaching double materiality. 

Double Materiality in the EU: NFRD & CSRD

The EU has been a major proponent for double materiality. In fact, the concept has been integrated into the EU regulatory framework that relates to sustainability reporting for several years now. 

These regulatory frameworks recognize that “because of society’s systemic failure to internalize environmental and social costs, poor corporate conduct on environmental and social matters has sometimes been rewarded with higher corporate profits or higher investment returns at the expense of the deterioration of planetary resources and social equity.” 

Here’s a summary of how the regulatory frameworks take into consideration a double materiality approach:


The EU Non-Financial Reporting Directive (NFRD) came into effect for all EU member states in 2017 and required large public interest entities (those listed on an EU regulated market, credit institutions, and insurance undertakings) to disclose information on ESG matters and on climate-related information.

The NFRD took a double materiality approach by requiring regulated entities to report on climate-related information, if that information affected the value of the organization. It also required organizations to report on activities that had an impact on ESG issues or climate change.

However, the NFRD faced criticism due to reporting requirements being too high level. Many felt its reporting requirements were insufficient to enable investors and other stakeholders to truly assess an organization’s ESG impact.


By making amendments to the NFRD, the Corporate Sustainability Reporting Directive (CSRD) was introduced, and will begin coming into effect in 2024. The CSRD expands the scope of the NFRD by requiring small and medium sized enterprises (excluding microenterprises) that are public interest entities to report. It also requires companies to include information on a broad range of sustainability matters relevant to their business in their reports.

The CSRD takes a double materiality approach and explicitly requires organizations to “report both on the impacts of the activities of the undertaking on people and the environment, and on how sustainability matters affect the undertaking.”

In fact, the CSRD defines a double materiality perspective as one where “the risks to the undertaking and the impacts of the undertaking each represent one materiality perspective.” It also requires reporting companies to consider who will use the information (e.g., investors, nonprofits, unions, general public, etc.) and ensures appropriate reporting is provided for those audiences.

The CRSD is particularly timely, since the requirements begin phasing in 2024 for different types of organizations. Here are the organizations that will be required to report over the next several years:

  • January 2024: Companies already subject to the NFRD, (i.e., EU large public-interest entities and their parent organizations with more than 500 employees).
  • January 2025: All other large undertakings listed in the EU that don’t currently meet the NFRD scope, as well as large non-EU undertakings or parent undertakings listed on an EU regulated market with more than 250 employees.
  • January 2026: All EU-listed small and medium-sized undertakings. 
  • January 2028: All non-EU undertakings not listed on an EU-regulated market. (e.g., international businesses not listed in EU-regulated exchanges, but doing business in the EU).

Steps To Incorporate Double Materiality Into Your ESG and Sustainability Programs

With double materiality taking center stage, it’s time to begin thinking about how it will affect your organization.

Although an organization’s approach to double materiality will be unique – and situated within the context of its activities – there are some general steps that can help when you’re first getting started. 

1. Understand your requirements

Some organizations, depending on their location, industry or size, will be required to make disclosures or report information. Before you begin, it’s important to understand what regulations affect your requirements to report financial and non-financial information. Additionally, these requirements can also help you determine what’s material and immaterial to your organization.

2. Conduct a double materiality assessment

As explained above, a double materiality assessment is a process by which you can come to understand your impacts, risks and opportunities. A double materiality assessment will help you set your ESG/sustainability strategy and prioritize your activities – ultimately reducing risk.

3. Keep detailed notes about how you’re approaching double materiality 

Many double materiality standards require that you provide details about how you’re planning, managing, budgeting for, and implementing a double materiality perspective. For instance, to uncover insights, are you doing stakeholder interviews, surveys, scenario planning or other analyses?

4. Collect and report the right information

Doing double materiality right means collecting a wide range of financial and non-financial information, and this can get complex. Rather than rely on a mix of spreadsheets and reporting tools, bring all of your information together into one source of truth using a platform like FigBytes. FigBytes is a leading sustainability platform that helps you automate and manage your entire ESG and reporting program.

In conclusion, the world of ESG and sustainability changes practically every day. However, double materiality looks like it’s here to stay. Get ahead by understanding what’s required of your business, and by taking proactive steps to implement a double materiality perspective.

Need help unraveling double materiality for your business? Reach out to a FigBytes expert today and see how our platform can help automate and manage your entire ESG and sustainability program, including double materiality and beyond.

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