What is materiality?

Materiality is a vital reporting concept for businesses to understand. We explain why.

Sophia Reeve
Written by:

Sophia Reeve

June 17, 2024
Graduate Sustainability Consultant

at Ecus

Businesses can enhance their approach to sustainability by determining what’s material to them, which better informs their business strategy, objectives, and reporting. 

But there are two different ways to determine material factors.  

A single materiality assessment identifies sustainability and climate-related issues that could impact a business’s financial performance. This identifies risks and opportunities affecting operations, earnings, or physical assets, known as the outside-in approach.  

However, increasing pressures from governments, investors and the public for businesses to better address their societal and environmental impacts has led to the emergence of double materiality. 

This requires businesses to report both on how they are impacted by sustainability issues, “outside-in”, and how their own activities impact society and the environment, “inside-out”.   

Sustainability reporting standards are increasingly moving towards incorporating double materiality into their guidelines and frameworks, and it’s now mandatory for around 50,000 businesses in the EU under the European Sustainability Reporting Standards.  

Although it’s more complex, double materiality results in more informed decision-making, resource allocation and better prioritisation of sustainability initiatives.