In recent years, the concept of materiality has become central to sustainability reporting, especially with the introduction of the CSRD (Corporate Sustainability Reporting Directive). Companies are increasingly required to identify and report on the most relevant ESG (environmental, social, and governance) aspects for their business and stakeholders.
One of the most effective tools for this purpose is materiality analysis, which helps identify the most significant topics for a company. With evolving regulations, the focus is increasingly on double materiality, which combines two distinct approaches: financial materiality and impact materiality.
What is materiality analysis?
Materiality analysis is the process by which a company determines the most relevant ESG topics for both its business and its stakeholders. This process helps identify strategic risks and opportunities while ensuring transparent and effective communication in sustainability reporting.
There are different perspectives on materiality, each with a specific focus:
-
Financial Materiality - Outside-In: Focuses on how external ESG factors affect the company’s financial performance and value. This approach assesses risks and opportunities related to regulations, climate change, reputation, and capital access.
-
Impact Materiality - Inside-Out: Evaluates how business activities impact the environment, society, and collective well-being. This includes CO₂e emissions, resource consumption, working conditions, and human rights.
-
Double Materiality: Integrates both approaches, considering both financial and environmental/social impact.
These three perspectives are defined by international reporting standards such as the GRI (Global Reporting Initiative), which emphasises impact materiality, and the ISSB (International Sustainability Standards Board), which adopts a financial materiality approach.
Double materiality in the CSRD
Double materiality is a key concept introduced by the CSRD, requiring companies to report both the financial impact of ESG issues on their performance and the impact of their activities on the environment and society.
For example, a company that produces CO₂e must not only assess the financial costs of emissions taxes but also the environmental impact of its operations. Similarly, if a company works with suppliers who fail to comply with labour regulations, this could lead to reputational risks with financial consequences.
The aim of this analysis is to identify the most relevant material topics for the company, ranking them by importance to facilitate a prioritisation process. This step is essential to focus on issues that, if not addressed, could have the greatest impact on sustainability and long-term competitiveness.
Moreover, double materiality analysis allows companies to assess the Impacts, Risks, and Opportunities (IROs) linked to environmental, social, and governance (ESG) issues. This approach not only considers the company’s impact on the environment and society but also evaluates how these factors might affect its financial performance. By doing so, businesses can identify risks and opportunities that may influence corporate value, optimising strategic decision-making in terms of both sustainability and return on investment.
To carry out a double materiality analysis, the ESG advisory experts at Green Future Project can support you in creating a tailored report.
The materiality analysis process
To conduct a robust and credible materiality analysis, companies can follow five key steps:
-
Establish an appropriate governance process
-
Define a universe of material issues
-
Collect data and supporting evidence
-
Act on the analysis results
-
Monitor materiality developments over time
A crucial element of the process is stakeholder engagement, which should be considered for both impact and financial topics. However, their input should not be the sole basis for the analysis.
The evolution of materiality and the future of ESG Reporting
The concept of materiality is continuously evolving. Initially confined to the financial sector, it has now become a fundamental element of corporate strategy and sustainability.
An emerging aspect is dynamic materiality, which highlights how the relevance of material topics can change over time due to external influences such as new regulations or shifting stakeholder expectations. For this reason, companies must periodically review their materiality matrix.
Conclusion
Materiality and double materiality analysis are now essential steps for companies seeking to effectively manage their ESG impacts and improve sustainability reporting. With the introduction of double materiality in the CSRD, businesses must adopt a broader and more structured approach to ensure their reports are credible, transparent, and aligned with international standards.
Double materiality analysis enables companies to identify and prioritise the most relevant topics, providing management with a clear framework for strategic decision-making. This process is not just a response to CSRD compliance requirements but a crucial step in structuring effective action plans in the short, medium, and long term, addressing challenges with a progressive and targeted approach.