Regulation & framework

Double materiality

A test applied in two directions: how sustainability issues affect the company's financial position, and how the company's activities affect people and the environment. An issue is material if either direction applies — not only if both do.

CoreEUwell covered

What it is

Most materiality assessments companies have run historically asked one question: does this issue affect our financial performance? Double materiality adds a second: does our activity affect the world in a way that matters, whether or not it costs us anything? The two directions have names — financial materiality and impact materiality — and an issue qualifies if it passes either test. In practice the impact direction usually widens the scope, because it captures things that are real but not yet priced. The assessment isn't a philosophical exercise. Its output is the list of topics you are then obligated to report on, which determines what data you need to collect, which suppliers you need to engage, and how much assurance will cost. Getting it wrong in either direction is expensive. Too narrow and you have a compliance gap. Too broad and you have committed to collecting data you can't source.

Why it matters

It settles what you have to report on. Under a single financial test, a company can omit impacts that don't threaten its own numbers. The second direction removes that option, and it's usually the one that expands the disclosure scope.

How it connects

applies to

reports on

Commonly confused with

Financial materiality — that is only one of the two directions double materiality requires.

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