Double materiality in non-financial reporting refers to the consideration of both the internal and external impacts of a company’s activities when assessing its sustainability performance.
Internal materiality refers to the company’s impact on its own operations, such as its environmental and social practices, governance, and supply chain management. External materiality refers to the company’s impact on society and the environment outside its own operations, such as its contribution to climate change, human rights violations in its supply chain, or the impact of its products on the environment.
Double materiality recognizes that a company’s sustainability performance is not only important for its own operations but also for its contribution to global sustainability goals. By considering both internal and external impacts, companies can identify and address the most significant sustainability issues, mitigate risks, and improve their long-term performance.
The concept of double materiality has gained prominence in recent years, particularly with the emergence of sustainability reporting frameworks such as the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD), which encourage companies to report on both their internal and external impacts.
Sources:
- The Global Reporting Initiative (GRI): The GRI Standards explain the concept of double materiality and how it should be applied in sustainability reporting. You can find more information about this on the GRI’s website: https://www.globalreporting.org/standards/gri-standards-explained/double-materiality/
- Task Force on Climate-related Financial Disclosures (TCFD): The TCFD recommends that companies report on both their own internal materiality and external materiality as it relates to climate change risks and opportunities. You can learn more about TCFD recommendations on their website: https://www.fsb-tcfd.org/
- International Integrated Reporting Council (IIRC): The IIRC encourages companies to consider double materiality in their integrated reporting, which combines financial and non-financial information to provide a more holistic view of a company’s performance. You can find more information on the IIRC’s website: https://integratedreporting.org/resource/creating-value-integrated-thinking-principles-based-approach-integrated-reporting/
- Harvard Law School Forum on Corporate Governance: This article provides a more detailed explanation of the concept of double materiality and its implications for sustainability reporting. You can read the article here: https://corpgov.law.harvard.edu/2020/08/14/double-materiality-in-non-financial-reporting/
