GUIDES FOR POLICY MAKERS SERIES

Double materiality.
The guiding principle forsustainability reporting
What is the issue?
Societal expectations have grown exponentially aroundsustainability issues in the last decade, and this has
resulted in an increased global push for companies toconsider and report both their impacts on the world aswell as how sustainability issues impact the financial
well-being of the company. The European Union
dubbed this concept “Double Materiality”. As a result,a global corporate reporting regime is emerging inwhich sustainability impact reporting and strengthenedfinancial reporting are mandated on equal footing, astwo key perspectives managed with the same rigour:•Perspective 1 – Reporting on impacts a company
is having on society and the environment andhence their contributions towards sustainabledevelopment.

•Perspective 2 – Reporting of sustainability-related
financial disclosures addressing the financial
implications of sustainability issues.

The reality is that the two perspectives are interlinked
and that impacts of an organization are or can become
financially material over time. Without understanding
these impacts, it won’t be possible to get a complete
overview of financial risks affecting the company.

Impact of an entity’s
activities on the world

Impact of sustainability
topics on the entity

The 2023 Annual Global Benchmark Policy Survey1
conducted by the Institutional Shareholder Services Inc.
(ISS) revealed that, when asked how their organization
defines materiality, 75% of investors responded
that materiality assessment should include externalcompany impacts. Only 6% of investors stated thatmateriality assessments should be ­limited to factors
having a direct financial impact on the company.
Moreover, impact reporting is also highly relevant in
its own right as a public interest activity for multiple
stakeholders. The impacts of a company matter, andmust be reported even if the company or its investors
do not consider them to be financially material, either
now or in the future.

What does this mean for policy makers?
Policy makers must be aware that double materiality
is more than a theoretical concept. It is appearing inpolicies and regulations, for example, as a fundamental
bedrock of the Corporate Sustainability Reporting

Directive (CSRD) which entered into force in January
2023. CSRD shifted sustainability reporting in Europe
from the ‘nice to have’ to the mandatory sphere, making
it obligatory for companies in the EU to report on the1 In total, ISS received 455 responses to this year’s benchmark policy survey. There were 239 responses from institutional investors and investor-affiliated organizations,and 216 responses from companies, corporate-affiliated organizations, and other non-investor respondents.

impact of corporate activities on the environment andpeople as well as how these impacts influence thefinancial position of the company.
While it is not universally true that where the European
Commission (EC) leads, others will follow, theintegration of double materiality into the CSRD means
national policy makers in the EU must develop policiesaligned with double materiality, while outside the EUthey will be confronted with it.
It is not only within CSRD that double materiality as aconcept is reflected. For example the EU’s Corporate

Sustainability Due Diligence Directive (CSDDD) isa proposed directive which obliges companies todemonstrate what action they are taking to protect
the environment and human rights. It could result inliabilities for companies who do not adequately manage
these impacts. Regulation on deforestation-free
products and Regulation on battery and waste batteries
will trigger such liabilities in cases of ecosystem
conversion, biodiversity loss and human right abuses.
Therefore, the number of issues that can have afinancial impact on the company and influence investor
decision-making is constantly increasing.

How can GRI help?
GRI supports the concept of double materiality, andits standards represents the impact side of double
materiality. In terms of the other perspective of doublemateriality, reporting sustainability-related financial
disclosures, companies that produce a GRI report
are well prepared for double materiality because of
a “sequencing” effect: the reported impacts serve as
the basis for companies to determine which of these
impacts, at what point in time could affect the financial
health and value creation of the company.
In this respect, GRI’s collaboration with the IFRSFoundation is important because it means theirrespective standard setting boards, the Global
Sustainability Standards Board (GSSB) and theInternational Sustainability Standards Board (ISSB),
will coordinate their capacity building programs andstandard-setting activities, ensuring a high degree ofinteroperability between the two leading impact andfinancial reporting standards.
Leveraging GRI as a baseline to this holistic approach isa good practice. The GRI standards address a wide array of sustainability topics that extend beyond climate-related matters. They are used by 73% of the world’s 250
largest companies by revenue, according to KPMG.
GRI offers the only reporting standards used by mostsurveyed companies in all regions (75% in the Americas,
68% in Asia-Pacific and Europe, 62% in ME & Africa).
Moreover, GRI Standards are developed by a broadgroup of stakeholders (NGOs, business, workers,

think tanks, academia, and investors), experts on aspecific issue or sector in question. They integrateinternational norms and guidelines, such as the United
Nations Guiding Principles on Business and Human
Rights (UNGPs), and the Organisation for Economic
Cooperation and Development (OECD) Guidelines forMultinational Enterprises. In the context of a global
business, complying with local laws only may not
be enough. Relying on standards that are based oninternational conventions can therefore safeguard acompany from risks of violating international norms.
GRI standards also integrate with existing mandatory
reporting frameworks. GRI and the European
Financial Reporting Advisory Group (EFRAG) thebody which developed the European Sustainability
Reporting Standards (ESRS), are collaborating to
make sustainability reporting easy to comply with.
The high level of interoperability between ESRS andGRI standards in relation to impact reporting wasconfirmed in a recent MoU and the release of a joint
interoperability index.

Double materiality, in essence, reflects thenew practical nature of sustainability reporting
and the recognition that impact, and financial
reporting are interconnected and that reporting
ideally should be one holistic process. For
more information on taking this approach,please contact policy@globalreporting.org.

GRI would like to thank the Government of Sweden for their financial support to this publication.

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