Double materiality: the backbone of the CSRD

The concept of double materiality has been coined by the EU in its efforts to make sustainability reporting of companies more effective, accurate and transparent. Double materiality will also take central stage in the new EU Corporate Sustainability Reporting Directive (CSRD). However, there always has been some unclarity surrounding the concept of double materiality. In this blog, we explain how it forms the backbone of the CSRD. 

Unclear terminology 

Before moving to double materiality, it is good to establish the contextual meaning of materiality in non-financial reporting. Some of the confusion surrounding the concept of materiality is rooted in the differences between materiality as used in financial accounting and materiality as used in non-financial reporting. Materiality in financial accounting refers to a financial threshold, which should be considered in calculations and estimations. In contrast, materiality in non-financial reporting refers to developments and processes that can have an impact on an organisation. 

Difference and benefit

Whereas regular materiality in non-financial reporting just considers the impact of the external environment on the organisation, double materiality also includes the impact of the organisation on the external environment. For the quality of reporting, double materiality has a significant benefit over regular materiality. It pushes companies to assess how their activities have a broader impact on the outside world. If companies can communicate this accurately, stakeholders can form a more complete view of the full impact of an organisation. 

Double materiality in the CSRD

Double materiality will be the norm for organisations reporting under the CSRD. This means that many organisations will need to change their materiality assessment to include the impact they have on the external environment. For Large SME’s facing more thorough reporting standards with the implementation of the CSRD, this might be a steep hill to climb. 

Material issues can differ significantly per company. We have a lot of experience in helping companies with their materiality assessments. We also support companies in the application of double materiality. Do you want to know how we can support you in conducting a materiality assessment? Please contact us.