The principle of Double Materiality recognizes that an

undertaking can both have

 an impact on Environment, Social and Governance
‘’ESG’’ issues ( =Impact Materiality), and
 be impacted by ESG issues (=Financial materiality).

Double Materiality is also called the inside-out and

outside-in perspective.
 3 . /10
Tell me more about Impact
materality?
Impact materiality,
‘’ Inside-out’’
Impact materiality is defined as:
The Actual or Potential, Negative or Positive impacts
on Society or the Environment *
over the short-, medium- and long-term...

..caused by the undertaking’s

Operations
Products
Services

…for both downstream and upstream activities

‘a.k.a. the value chain’.

Or simply put : All (potential) impacts on

Environment and Society that can be (indirectly)
attributed to activities of the company.
* The explainer will further focus on Societal and Environmental factors
 4 .
/10
What are some examples of
topics with Impact
materiality?
 Illustrative examples Positive and Negative Impact

Non-Financial service
Environment Social
Activities with high CO2 Emissions Human Rights violations in the
value chain

Generating waste and (air) Health & Safety of employees

Pollution
Upskilling , Diversity &
Usage of renewable energy inclusion policies

Reduced CO2 targets Customer Satisfaction

 5 ./10
How to start the
assessment for Impact
materiality?
In short, start by mapping the company’s value chain and
involve stakeholders to determine which ESG topics are
considered material.
Illustrative example value chain & stakeholders - Non-Financial service

Manufacturer Customers
Producer
Raw materials Suppliers Employees Distributers
 6 ./10
After gathering a list of
topics with a (potential)
impact , what’s next?
 For Impact Materiality, the next step is to determine
(together with an expert) if the list of identified
topics have a (potential) positive or negative impact
on
Environment and/or Society.
Negative Positive

For negative impacts, determine if the

impact is potential ( more likely than not)
or actual. Remember, this has to be done Potential Actual?
over the short, medium and long term. ?

For all potential impacts, further

determine the Severity and
Likelihood. Severity And Likelihood

The Severity is determined based

on three variables. Scale Scope Remediability

How grave is
the impact? How widespread Can negative impact be
is it? remediated?

For all Positive & Potential impacts, determine Scale,Scope and Likelihood

For all Positive & Actual impacts, determine Scale and Scope
 7 . /10
Ok moving on,
what is Financial materiality?

Financial materiality,
‘’Outside-In’’
A Sustainability topic is material from a financial
perspective if it (may) trigger a financial impact
on the undertaking.

This means that an Environment or Social matter

either generates Risks or Opportunities,
that (are likely to) influence the undertaking’s
future:

Access to Capital
Cash Flows Performance
Includes inter alia
finance
Human, Social and
Nature capital

…over the short-, medium- and long-term.

( i.e. this also includes matters not yet captured in the
Financial report at Balance sheet)
 8 ./10
What are some examples
of topics that can be
Financially material?
 Illustrative examples Risk and Opportunities

Non-Financial service
Environment
Impact of climate change on raw
materials and production
capacity.CO2 Tax regulations (i.e.
lower profits)
Timely transition to renewables
(i.e. lower cost)
Low-emission products (i.e.
Competitive advantage)
Social
Shift iconsumerpreferences
(i.e. stranded assets)
Lower employee productivity
Talent attraction (i.e.Human
Capital)
Health and safety measures
(i.e. legal costs and Human
capital)
 9 . /10
How to assess Financial
materiality topics?
Start with engaging relevant stakeholders ( same step as for
impact materiality)
Determine material dependencies on
To determine which topics could be ‘’E’’ and ‘’S’’ resources

Financially material, consider the

existence of dependencies on natural
and social resources.

Classify these sources into

(potential) Risks or Opportunities. Risk Negative
influence on:
Opportunities: Positive
influence on:

Determine which topics are

material, based on the Likelihood
of occurrence and
Magnitude of financial impact.
Likelihood Magnitude
Perform this assessment for
different time horizons.
 In summary, Double Materiality refers to the
impact the undertaking has on Environment and
Society and in turn the financial impact (=risk and
opportunities) these two factors have on the
undertaking.
 A topic is considered material if it has EITHER a
Material Impact OR Financial Impact OR both.
 To determine which topics are material, the
undertaking should engage with its stakeholders to
gather their perspectives and compile an initial list.
This should be done multiple times throughout the
assessment process to determine the final material
topics.
 Once possible material topics have been identified,
these should be assessed and disclosed.
Please note, this process is not linear and will require
having multiple ‘back-and-forth’ with the stakeholders to
understand the material topics.
Final Thoughts. The double materiality assessment can
also be a useful framework from an ESG Risk Management
and Strategy perspective.

The concept is also useful for your day-to-day. Whether

you’re working in HR, Finance, Risk, Procurement or any
other profession, using double materiality helps you to
identify the ESG impacts you have, and how ESG Risks and
opportunities (e.g., financial materiality) can influence your
activities.