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Good to know ESG reporting – what is double materiality and why does it really matter?

ESG reporting – what is double materiality and why does it really matter?

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​​​​​​​​​​​Joanna Biguszewska

5 grudnia 2024


The European Sustainability Reporting Standards (ESRS) require reporting of all impacts, risks and opportunities (IROs) that have been identified as material during a double materiality assessment. ​

What is double materiality


Double materiality has two dimensions, namely: impact materiality and financial materiality. 

Impact materiality identifies the undertaking’s impacts on people and the environment, while financial materiality identifies ESG factors that affect the undertaking’s financial position. 

Impact materiality, financial materiality​


Impact materiality pertains to:

  • potential or actual,
  • positive and negative 

impacts of the undertaking on people and the environment assessed in the short, medium and long term. It covers the undertaking's own operations and the entire value chain.

Financial materiality involves an analysis of how various factors related to the environment and people may affect the undertaking’s financial position, in particular:

  • access to finance,
  • cash flows,
  • financial performance.

A sustainability matter is material if it meets the definition of impact materiality, financial materiality, or both.

Examples of material impacts from two perspectives


Impact materiality
Financial materiality
​Water pollution in a production process.
​Withdrawal of funding by banks due to air pollution produced by the undertaking and lack of decarbonisation plans .
​Recyclability of product packaging.
​A continuing drought may cause water problems in the factory, and thus affect production and financial performance.
​Working conditions for agency workers.
Human rights violations (child labour) at the supplier may negatively affect consumer decisions and undertaking’s performance.
​Gender pay equity.
Unfair payment practices may affect undertaking's liquidity​.​

Double materiality assessment


Double materiality assessment precedes reporting and should be performed early in the overall process.
According to the EFRAG IG1 Guidance, this process may include the following steps:

  • understanding of the context;
  • identification of actual and potential IROs related to sustainability matters;
  • assessment and determination of the material IROs related to sustainability matters;
  • reporting.

This process is also subject to attestation by a statutory auditor and its outcome must be included in the sustainability report.

Double materiality – statutory auditors' assessment


As the outcome of the double materiality assessment drives the shape and content of the sustainability report, we recommend carrying out the process early enough, with due diligence, and presenting the results to the statutory auditor for assessment in advance.

Contact us – our experts will help you navigate sustainability complexities.

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Joanna Biguszewska

Auditor (Poland)

Associate Partner

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