Double materiality
Double materiality is the perspective that a sustainability matter can be material because of an organization's impacts on people or the environment, because the matter creates financial risks or opportunities for the organization, or both. A matter need not meet both perspectives to be material under this approach.
In simple terms
The impact perspective looks outward at actual or potential, positive or negative effects connected with the organization, including through its value chain. The financial perspective looks inward at sustainability matters that could influence the organization's development, financial position, performance, cash flows, access to finance, or cost of capital. The perspectives are assessed separately and then considered together. They can interact: an environmental or social impact may later create legal, market, operational, or reputational financial effects, but such a pathway is not required for impact materiality.
Why it matters
An investor-only lens can miss severe effects on people or ecosystems that are not yet financially significant, while an impact-only lens can omit sustainability-related financial exposures. A materiality assessment using double materiality keeps both information needs visible. It is central to European Sustainability Reporting Standards and helps explain why their disclosures can differ from standards focused primarily on enterprise value.
Example
For example, a factory's water withdrawals may be materially harmful to a water-stressed community even before they affect the company's finances. Separately, future water restrictions may create material production costs. Under double materiality, either conclusion can make the water matter reportable, and both conclusions should be documented if they apply.
How it differs
Materiality assessment
Double materiality defines the two perspectives used to judge sustainability matters. A materiality assessment is the method that applies specified criteria, evidence, and thresholds to reach and document those judgments.
European Sustainability Reporting Standards
Double materiality is a reporting perspective. The European Sustainability Reporting Standards are the standards that operationalize it for disclosures within their applicable EU reporting context.