The concept of double materiality in the EU law refers to the disclosure of information that is material both in terms of its financial implications for a company and its broader impact on the environment and society. It encompasses climate change, environmental impacts, social issues, and human capital concerns. The European Union (EU) has incorporated double materiality into its regulatory framework through directives like the Non-Financial Reporting Directive (NFRD) and the Corporate Sustainability Reporting Directive (CSRD).
The Corporate Sustainability Reporting Directive (CSRD) is a directive agreed upon by the European Parliament and the Council to enhance sustainability reporting and align it with financial reporting. The CSRD mandates the adoption of European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG). These standards aim to provide clear, consistent, and meaningful disclosure requirements, ensuring companies report their sustainability performance systematically and credibly.
Double materiality is important because it recognizes that sustainability issues can have significant financial implications for companies. By disclosing information that is material both financially and in terms of its broader impact on the environment and society, companies can provide investors and stakeholders with comprehensive information on sustainability matters.
The European Green Deal is a comprehensive plan by the European Union to make Europe the world's first climate-neutral continent by 2050. Double materiality is closely aligned with the objectives of the European Green Deal as it emphasizes the need for companies to integrate sustainability risks into their reporting and decision-making processes. By considering both financial and non-financial impacts, companies can contribute to the transition towards a more sustainable and resilient economy.
Under double materiality, companies are required to assess their impacts on sustainability factors and integrate sustainability risks into their reporting. This includes disclosing information on climate change, environmental impacts, social issues, and human capital concerns. The reporting requirements are set out in directives such as the Non-Financial Reporting Directive (NFRD) and the Corporate Sustainability Reporting Directive (CSRD).
Efforts are underway to achieve interoperability between the European Sustainability Reporting Standards (ESRS) and the standards developed by the International Sustainability Standards Board (ISSB). While supporting the ISSB at the international level, the EU emphasizes the need for integration with its own standards to meet the objectives of the European Green Deal. This integration ensures that companies can report their sustainability performance consistently and credibly, both at the European level and globally.
The concept of double materiality in the EU law requires companies to report on both financial risks and their impacts on people and the environment. It is an important aspect of sustainability reporting that aims to provide comprehensive information to investors and stakeholders. The EU has incorporated double materiality into its regulatory framework through directives like the NFRD and the CSRD. By considering both financial and non-financial impacts, companies can contribute to addressing environmental and social challenges and support the objectives of the European Green Deal.
Screen around 100 CSRD solutions in minutes not weeks, and create an individualized list of solutions.
