Materiality

Double materiality considers the impact of sustainability on the financial performance of a company and the impact that the company has on people and the environment. By integrating both perspectives, the double materiality approach helps investors, regulators, and stakeholders understand the true cost of a company's activities and make more informed decisions.

In traditional financial reporting, organizations are required to focus solely on financial materiality, disclosing only information that might affect the company's financial performance such as revenue, expenses, and profits. Many traditional ESG reporting frameworks, such as the Sustainability Accounting Standards Board (SASB) or the Taskforce on Climate-Related Financial Disclosures (TCFD), follow this same investor-focused approach and require sustainability disclosures only when the information is considered relevant to investors.

Newer frameworks, such as the European Sustainability Reporting Standards (ESRS), adopt a double materiality approach. This approach means that they consider more than the financial impact of sustainability issues on the company. The newer frameworks also consider the impact of the company's activities on people and the environment, which is known as impact materiality. Impact materiality includes factors such as greenhouse gas emissions, water usage, and human rights practices.