Types of Materiality

Understanding Materiality and Double Materiality

Types of Materiality:

1. Financial Materiality: This type of materiality focuses on assessing the impact of financial information on a company’s overall financial status and reporting. It involves determining what information is significant enough to include in financial reports and how it affects the company’s financial health and reputation, especially in the context of ESG reporting.
2. Legal Materiality: Legal materiality pertains to the importance of information in a legal context, considering the regulations and laws governing the company’s operations. It involves ensuring compliance with legal requirements and assessing the relevance of information in legal proceedings and disclosures.
3. Operational Materiality: Operational materiality encompasses factors that impact a company’s operations, performance, and sustainability reputation. It focuses on ESG factors such as environmental impact, labor practices, supply chain management, diversity and inclusion, community engagement, and corporate governance practices.

Double Materiality:

Double materiality is the integration of financial and ESG materiality considerations into reporting and decision-making processes. It acknowledges that both financial and ESG factors are important to stakeholders and impact a company’s long-term success.

• Financial Materiality: Considers the financial impact of ESG factors on a company’s performance and reputation, recognizing their significance for investors and financial stakeholders.
• ESG Materiality: Focuses on non-financial aspects such as environmental sustainability, social responsibility, and corporate governance, which affect the long-term sustainability and success of a company.

Organizations adopting double materiality recognize the interconnectedness of financial and ESG factors and strive to integrate ESG considerations into their core business processes. By doing so, they enhance transparency, accountability, and resilience, driving long-term value creation for all stakeholders.