Impact materiality
Impact materiality is the assessment perspective used to determine whether a sustainability matter is material because of an undertaking's actual or potential, positive or negative impacts on people or the environment. Under ESRS, it considers impacts connected with operations and the value chain across short-, medium-, and long-term horizons.
In simple terms
The assessment starts with impacts, not only with effects on the reporting company. Financial materiality is assessed through a different lens focused on risks and opportunities for the undertaking. Impact materiality considers impacts the undertaking causes, contributes to, or is directly linked to through business relationships. For negative impacts, severity is central and likelihood is also considered for potential impacts; human-rights impacts receive particular attention. Positive impacts are assessed by scale and scope, with likelihood considered when potential. The process should use relevant evidence and engagement with affected stakeholders or credible representatives, then document how material matters and disclosure requirements were determined.
Why it matters
Impact materiality ensures sustainability reporting addresses significant effects on people and the environment even when near-term financial consequences are unclear. Double materiality requires this perspective to be considered alongside the financial perspective. It can guide due diligence, strategy, targets, and resource allocation. Transparent criteria and evidence are essential because a narrowly framed assessment can omit value-chain harms, vulnerable groups, or long-term ecological effects.
Example
A garment company maps impacts across its own sites and suppliers. It identifies severe potential worker-safety harms in outsourced production and major water impacts in fibre processing. Even before either issue produces a measurable financial loss, the company assesses them for impact materiality using severity, likelihood, stakeholder evidence, and value-chain information.
How it differs
Double materiality
Impact materiality examines the undertaking's material impacts on people and the environment; double materiality combines this perspective with financial materiality, and a matter may qualify under either or both.
References
Current status
- As of
- Issuer
- European Commission
- Jurisdiction
- European Union
- Instrument or version
- Commission Delegated Regulation (EU) 2023/2772 and ESRS
- Status
- Impact materiality is part of the double-materiality approach in the European Sustainability Reporting Standards adopted through delegated regulation.
Applicability: EFRAG IG 1 provides non-authoritative implementation guidance. Reporting entities should use the ESRS text and amendments applicable to their reporting period and confirm whether the underlying reporting requirements apply to them.