Double materiality

Double materiality recognizes the two-way relationship between a company's financial performance (economic impacts) and its environmental, social and governance (ESG) impacts. It goes beyond the traditional focus on financial materiality and includes the impact of financial decisions on ESG factors. In essence, double materiality acknowledges that sustainability issues can be material to both a company’s financial performance and its broader societal and environmental context.

Financial materiality refers to the impact of ESG issues on a company’s financial performance. This is the traditional way of looking at materiality, where organizations assess how sustainability-related risks and opportunities can affect their bottom line. 

Impact materiality (ESG) Refers to the impact of financial decisions based on ESG factors. It recognizes that financial decisions made by compass can have significant implications for stakeholders beyond shareholders, including employees, communities and ecosystems. 

Double materiality suggests that companies should consider the broader implications of their financial decisions based on ESG factors. This approach aligns with the growing awareness that businesses have a role to play in addressing global challenges, such as climate change. 

Double materiality acknowledges the interconnectedness of financial and non-financial impacts in sustainability reporting. And with the new CSRD legislation, along with the ESRS standards, it’s not only nice that companies are aware and reporting on these matters - it’s obligatory.