Double materiality

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‘Double materiality’ is a concept used in corporate reporting to refer to the risks and opportunities that are important to a business. For the purposes of financial reporting, a company will measure those things that have a material impact on the business’ financial position; this may include impacts on the business from social and environmental factors.

For example, it is now widely accepted that climate-related impacts on a company can be financially material and require disclosure. However, double materiality recognises that risks can be material from both a financial and non-financial perspective, and that issues that are material to environmental and social objectives can also have financial consequences in the long term.

For example, a business’ negative social and environmental impacts may lead to legal liabilities or reputational risks or, particularly for investors with a long-term horizon, acting prudently may include avoiding contributing to social and environmental systemic destabilisation.

Taking a double materiality approach, a business would therefore report both on material topics that have an ‘inward impact’ (influencing the company’s value), as well as those that have an ‘outward impact’ (affecting the economy, the environment and people). This approach is reflective of the dependence of business on natural, social and human capitals.

See also: materiality, dynamic materiality, embedded materiality.


European Commission Guidelines on reporting climate-related information PDF