What is double materiality?

The release of new sustainability disclosure standards has reignited the debate over what types of disclosure these should include, and, as with many things in this space, there’s a fair amount of technical terminology.

Disclosing information about sustainability is becoming more commonplace, and even mandatory in many regions. But there are different ways of assessing what is and isn’t finally material for those disclosures.

Single materiality considers the impact of sustainability issues on a company’s financial performance.

“The easiest way I have found of summarising materiality for people is in basically saying it’s about the direction of risk,” Planet Mark director of community and partnerships Andrew Griffiths told ESG Clarity.

“Single materiality is, what is the risk of ESG factors on the business?”

Double materiality, which was first introduced by the EU Commission in what has become the Corporate Sustainability Reporting Directive, looks at how climate factors affect a company or entity’s financial value but also at how that company or entity impacts the world around it, such as its environment, the climate or the communities it operates in.

“Double materiality says, also how is the business going to affecting the risk factors associated with ESG?” Griffiths said.

He added: “Triple materiality is defined in slightly different ways but it basically says we should be placing limitations upon what risks should be allowed and acceptable within these these frameworks. It applies thresholds to sustainability and says anything above those are unacceptable.”

See also: – ESG tool for sustainable disclosure launches

Currently the standards introduced by the IFRS use single materiality, whereas double materiality is a ‘guiding principle’ of the GRI standards, for example.

“Failing to disclose on a double materiality is actually detrimental to long-term financial materiality,” Federated Hermes’ head of responsibility Leon Kamhi wrote in ESG Clarity in 2021.

“Ignoring material social and environmental risks and opportunities is done at a company’s financial peril and viability, and if we are, as an industry, to operate in a way that is truly transparent and effective, we must consider this type of information to be acutely financially material.”