Double materiality

A textile brand with a B Corp ambition begins its first double-materiality assessment ahead of its CSRD Sustainability Statement. The process deploys the two perspectives in parallel.

• Inside-out

  It identifies 7 material impacts: cotton-cultivation emissions in Pakistan, water consumption in spinning in Turkey, garment-making working conditions in Morocco, consumer-washing microfibres, dyeing chemicals, post-consumer textile waste, collection overproduction.

• Outside-in

  It identifies 4 financial risks and 2 opportunities: regulatory risk EUDR + Forced Labour + ESPR, physical risk of drought in Indian cotton, reputational risk of greenwashing, carbon transition risk Scope 3 · opportunity of access to transition funds + premium B Corp differentiation + DPP pioneer.

• Cross-referenced

  It cross-references both perspectives in an integrated matrix. Result: 5 material matters to report as topical (E1, E2, E5, S1, S2) with MDR-P/A/M/T each + 5 NON-material topicals (E3, E4, S3, S4, G1) with IRO-1 only.

Common mistakes

• Double materiality is not traditional financial materiality extended with sustainability.

  The two perspectives are independent and impact materiality assesses how the company affects people and the environment with severity criteria (scale, scope, irremediable character) without a financial effect on the company itself being involved. ESRS 1 ¶43 is explicit: impact materiality covers impacts on the outside world. A company can have a material topic by impact without it having (yet) a measurable financial effect. EFRAG IG 1 ¶35 makes it precise: although the two perspectives are often intertwined, a material impact is not required to generate a risk or an opportunity to be reported.

• It is not the same as the materiality of IFRS S1/S2 nor that of the accounting IFRS.

  IFRS S1 (the standard issued by the ISSB) uses only financial materiality (single materiality), focused on the effects on the cash flows, access to finance or cost of capital of the reporting entity. EFRAG IG 1 §4.2 ¶140-143 recognises, in faithful paraphrase, that the criteria for financial materiality and materiality of information in the ESRS and the corresponding materiality approach in IFRS S1 are aligned — an alignment also underlined by recital 29 of the CSRD — but the ESRS add the impact dimension (impact materiality) that IFRS S1 does not contemplate. Accounting IFRS materiality operates on the financial statements with criteria different from those of the sustainability statement and is not comparable.

• The severity of an impact does not require all three factors: any of scale, scope or irremediable character can make it material.

  ESRS 1 AR 11, in faithful paraphrase: any of the three characteristics (scale, scope and irremediable character) can make a negative impact severe. In human rights, the rule of ESRS 1 ¶45 in fine also applies: severity takes precedence over likelihood for potential impacts. For positive impacts, ESRS 1 ¶46 explicitly excludes the "irremediable character" factor — only scale and scope (actual) and scale, scope and likelihood (potential) apply.

• ESRS 2 General Disclosures are always reported, even if the analysis concludes that no topical matter is material.

  ESRS 1 ¶29, in faithful paraphrase: irrespective of the outcome of its materiality assessment, the company shall always disclose the information required by the General Disclosures of ESRS 2 (i.e. all the Disclosure Requirements and datapoints specified in ESRS 2) and the Disclosure Requirements (including their datapoints) of the topical ESRS related to the Disclosure Requirement IRO-1. Only the Disclosure Requirements of the topicals beyond IRO-1 are subject to the materiality filter. And for ESRS E1 specifically, ESRS 1 ¶32 requires a detailed explanation with forward-looking analysis if non-materiality is concluded.

• It is not a prescriptive process: the ESRS do not impose a single methodology.

  ESRS 1 does not set universal numerical thresholds and EFRAG IG 1 ¶63-64 underlines it, in faithful paraphrase: the ESRS do not mandate how the materiality-assessment process shall be designed or conducted by a company. The company designs a process appropriate to its facts and circumstances and must document it in ESRS 2 IRO-1 (description of the process) and IRO-2 (Disclosure Requirements covered), including the justification of the quantitative and qualitative thresholds applied (ESRS 2 ¶53 and ¶59 per IG1 ¶83). The participation of affected stakeholders is considered central but ESRS 1 AR 8 indicates that it is the company that decides the depth and modalities.

Frequently asked questions