Insights
Double materiality assessment is the foundation of sustainability reporting under the European Sustainability Reporting Standards. It determines what you report, and therefore what data you have to build, which means getting it wrong is expensive in both directions. Too broad and you commit to collecting data you never needed. Too narrow and your report has a hole in it that an assurance provider will find.
By Christopher Fagan
It is also the piece most often done quickly, by workshop, in a fortnight. Those assessments tend to be redone.
Impact materiality looks outward. What effect does your organisation have on people and the environment, through your own operations and through your value chain, including effects that are potential rather than actual and negative as well as positive.
Financial materiality looks inward. Which sustainability matters create risks or opportunities that could reasonably be expected to affect your cash flows, access to finance or cost of capital over the short, medium and long term.
A matter is material if it meets either test. It does not need to meet both, and this is the point that most often gets lost. Plenty of matters are materially impactful without being financially material, and they still have to be reported.
You cannot assess impacts you have not mapped. This means upstream suppliers and downstream use, not just your own sites and payroll. For most organisations this is the single largest piece of effort and the one most often skipped.
Start from the topics set out in the standards, then add what is specific to your sector and your business model. Sector guidance and peer reporting help, but a list assembled purely from peers will inherit their blind spots.
Affected stakeholders for impact materiality, which means workers, communities, suppliers and where relevant customers. Users of financial statements for financial materiality, which means investors and lenders. These are different groups asked different questions, and a single combined survey does not satisfy either.
Impacts are assessed on scale, scope and irremediable character, with likelihood applied to potential impacts. Financial risks and opportunities are assessed on magnitude and likelihood across defined time horizons. You need a documented method and consistent application, not a judgement recorded as a number.
Deciding where the line falls between material and not material is a governance decision, not an analytical one. It should be taken deliberately, documented, and approved by whoever is accountable for the report.
This is the part that separates an assessment that survives assurance from one that does not. Your assurance provider will not simply accept a conclusion. They will ask how you reached it, who was involved, what method was applied, what evidence supported the scoring and why the threshold sits where it does.
For a mid sized group with a reasonably contained value chain, six to ten weeks, and stakeholder availability is almost always the constraint rather than analytical effort. Complex international groups with extended supply chains take longer. Anyone offering to complete one in two weeks is running a workshop, not an assessment.
Everything downstream depends on it. The datapoints you have to collect, the systems you have to build, the controls you have to put in place and the cost of the whole reporting operation are all set by this assessment. An extra month spent getting it right typically removes far more than a month of unnecessary data work later.
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If any of this is live for you right now, the senior people who wrote it are the people you would work with.