Guide

What Are  “Materiality”

and  “Double Materiality?”
Here’s What You Need to Know
Phil Molé, MPH

www.EHS.com
Contents

Materiality: The First Step in ESG Management......................................................... 3

Materiality in Practice: Objectives, Targets and Programs....................................... 3

What is Double Materiality?........................................................................................... 4

Materiality and Reporting Strategy.............................................................................. 6

Materiality Matrix............................................................................................................. 7

Materiality and ESG Reporting Frameworks............................................................... 7

Key Takeaways on Materiality........................................................................................ 8

Additional VelocityEHS Resources on ESG and Materiality...................................... 9

The EHS & ESG Journey....................................................................................................................................................................................9
Implementing an ESG Program: The CEO’s Checklist............................................................................................................................9
Tracking All Three Scopes of Greenhouse Gas with ESG Software...................................................................................................9
An Overview of ISO 14001: Using the Standard to Improve Environmental Management....................................................9
Stay Updated.......................................................................................................................................................................................................9

Let VelocityEHS Help!....................................................................................................... 10

© 2022 VelocityEHS | What Are  “Materiality” and “Double Materiality?” 2 of 10

If you’ve been following the growing dominance of Environmental, Social and Governance
as a management framework, you’ve probably seen or heard references to the concept of
materiality. If you’ve been following closely, you may have already encountered references
to the concept of double materiality. While these terms are important for organizations
to understand, it can be tricky to determine precisely what they mean—and more
importantly, how you can use them to achieve and maintain greater ESG maturity.

In this guide, we’ll break down the concepts of “materiality” and “double materiality”
and share some key takeaways about their importance to ESG management.

Materiality: The First Step Materiality in Practice:

in ESG Management
The easiest way to think of materiality is as a relevancy filter
for the issues that matter most to an organization. That
information is considered “material” — or relevant — if it could
influence the decision-making of stakeholders regarding the
company. The exercise of determining what issues are material
to your organization is called a materiality assessment.
This might sound like a great place to begin your whole
ESG strategy, (and you’d be right) but it doesn’t always play
out that way. Many organizational leaders decide to pursue
specific ESG goals, often based on a choice of ESG reporting
framework, without sitting down to figure out whether those
goals are the most relevant ones for their company and their
operations. This can lead to several less-than-ideal situations,
like over-reporting, or ignoring the risks and opportunities
that could make the biggest impact on your own company’s
ESG performance.
In other words, if you don’t start with a materiality assessment,
you’re letting other people who don’t know the specifics
of your company determine what’s relevant for your
stakeholders. It makes more sense to take full ownership of
your ESG program and conduct an assessment that captures
the specific risks and opportunities for your business to set
you up for success.
That’s why, while the name itself wasn’t always used,
materiality has long been a central part of a “management
system” approach. For instance, ISO 14001, the international
standard for environmental management systems, states that
organizations need to determine the “internal” and “external”
issues relevant to its environmental performance and
determine which “aspects” of their operations have significant
environmental “impacts.” Based on this materiality assessment,
the organization then determines which goals, or objectives,
make the most sense for them.
Objectives, Targets and Programs
Let’s look at an example of how materiality can help an
organization choose and manage solid ESG management
objectives. The following uses the common way of thinking
about objectives as defined by ISO 14001, in a system of
“Objectives, Targets and Programs.”
Objectives are goals, stated generally, that you would like
to meet in the future. In other words, when you’re writing an
objective, even though you should already be thinking about
how you’re going to measure and verify them, you’re not
going to get that granular yet.
Targets are the point where granularity comes in. Setting
targets involves determining specific verifiable measures to
document that you’re meeting your objectives and meeting
the chosen performance criteria.
Programs are the specific methods and strategies you’re
going to use within your environmental management system
to achieve your objectives and targets.
An organization selects its Objectives, Targets and Programs
based on its assessment of material impacts. For example,
suppose your facility annually uses a significant amount
of electrical energy within normal operations, as well as a
large quantity of natural gas for comfort heating. This might
especially be true if it’s an older building with an outdated
electrical system, or one that has aging boiler or pipe
insulation. There are many reasons why you might consider
this energy consumption “material,” but for now, let’s focus
on an issue that internal stakeholders will widely recognize:
Energy consumption comes with financial costs in the form of
utility bills, and reduction of energy usage therefore represents
an opportunity for cost savings.

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 Objective Target Program

Reduce facility’s electrical energy Reduce facility’s electrical energy

Replace incandescent bulbs in main
consumption and associated consumption by 10% within 2 years relative
factory with high efficiency bulbs.
utility costs. to fiscal year 2021 baseline.

Reduce facility’s natural gas consumption
Reduce facility’s natural gas consumption
by 10% within 2 years relative to
associated with comfort heating.
fiscal year 2021 baseline.
Replace worn boiler and natural gas pipe
insulation to improve efficiency and reduce
average consumption.

Examples: Objectives, Targets and Programs

The table above shows what some potential Objectives,
Targets, and Programs might look like.
So to recap, you started with your materiality assessment
which showed your facility uses a large amount of electricity
and natural gas, and that this usage has a significant
financial impact. That helped you pick relevant objectives,
figure out reasonable numerical targets to pursue, and
plan programs to efficiently achieve those aims. It’s hard to
imagine getting this level of focus and organization if you’re
overlooking materiality.
What is Double Materiality?
So far, materiality might seem straightforward. We've
established that it's about relevance. But, we haven't
established how to determine relevance, and how that
determination depends on the context or framework we're
using. The example above shows one way of thinking about
materiality — namely, in terms of financial benefits and
costs. But another frame you could rightfully use in that
example involves thinking about the impacts of your energy
consumption on the world outside your company, such
as in terms of depletion of fuel resources and emissions of
associated air contaminants and greenhouse gases (GHGs).
In ESG circles, the two main ways of thinking about that break
down into financial materiality and impact materiality.
Financial materiality is about economic value — creation
– it’s focused on the issues that internally impact a
company’s financial performance and its ability to create
economic value for investors and shareholders. This is
the definition of materiality adopted by the International
Sustainability Standards Board (ISSB), an organization formed
by its parent entity, the International Financial Reporting
Standards (IFRS) Foundation, in late 2021.
For example, in its draft standard on General Requirements for
Disclosure of Sustainability-related Financial Information, ISSB
states that "information is material if omitting, misstating or
obscuring that information could reasonably be expected to
influence decisions that the primary users of general-purpose
financial reporting make based on that reporting, which
provides information about a specific reporting entity.” In other
words, data is financially material if it is needed to form an
accurate picture of the financial health of a company and its
potential value to investors.
Impact materiality focuses on the external impacts an
organization’s activities have, including impacts on
communities and the environment. According to the
European Financial Reporting Advisory Group (EFRAG), “a
sustainability matter is material from an impact perspective if
it is connected to actual or potential significant impacts by the
undertaking on people or the environment over the short-,
medium- or long-term. This includes impacts directly caused
or contributed to by the undertaking in its own operations,
products or services and impacts which are otherwise directly
linked to the undertaking’s upstream and downstream value
chain, and not limited to contractual relationships.”
These would include the organization’s contributions to
air and water pollution, for example, or its emissions of
greenhouse gases (GHGs) that add to global climate risks.
These two types of materiality aren’t isolated from each
other, because some issues create both internal financial
risks and external impacts. For example, a company that
has an uncontrolled release of a hazardous chemical would
certainly create external impacts on the local community,
potentially on organisms in water and soil, and might also be
opening themselves up to regulatory violations and associated
penalties, or financial losses from civil suits. And a company
with a high intensity of GHG emissions may be contributing
to climate risks, including severe weather events that can
damage their facilities or disrupt supply chains.

© 2022 VelocityEHS | What Are  “Materiality” and “Double Materiality?” 4 of 10

The relationship among financial Double Materiality
materiality, impact materiality and
double materiality (Combines financial and impact materiality)

Financial Materiality Impact Materiality

Issues that internally impact External impacts a company’s

financial performance and activities have, included
the company’s ability to impacts on communities
create economic value for and the environment
investors and shareholders (air, emissions, water
discharges, GHGs)

The relevance and interconnectedness of both impact and
financial materiality are the reason for the growing importance
of the concept of double materiality, which combines both
perspectives. The relationship among financial materiality,
impact materiality and double materiality is shown in the
figure above.
To clarify, EFRAG maintains that an issue doesn’t have to
demonstrate both financial materiality and impact
materiality to count from a double materiality framework.
EFRAG’s conception of double materiality casts the net wide
and counts any issues as material if they’re relevant from
either perspective.

In other words, it’s about not only how sustainability impacts
your own performance and position, but also about your
company’s impact on wider sustainability issues. This dynamic
interplay between internal impacts and outward impacts is
shown in the figure below.
Outward Impacts
As Global Reporting Initiative (GRI), one of the premier
ESG standards-developing bodies in the world, puts it:
“Double materiality is the union of impact materiality
and financial materiality. A sustainability matter meets
the criteria of double materiality if it is material from either
the impact perspective or the financial perspective or
both perspectives.”

In mathematical terms, double materiality is the union of

financial and impact materiality rather than the intersection,
as shown in the diagram below.

Double Materiality (as defined by EFRAG)

Financial Double Impact

Materiality Materiality Materiality

Internal Impacts

The entire red area contains issues that are material

from a double materiality perspective

© 2022 VelocityEHS | What Are  “Materiality” and “Double Materiality?” 5 of 10

 Company leadership needs to assess
materiality based on the organization’s
overall operating context, while also
identifying the unique risks and opportunities
for each of their operating locations.

The concept of double materiality overlaps with, and is an
example of, the notion of stakeholder capitalism — the idea
that companies have responsibility toward a wide range of
stakeholders in addition to just shareholders and investors.
It reinforces the idea that a focus solely on bottom line
financial issues for a company isn’t enough because it doesn’t
account for the growing impact of a company’s activities on
the environment, and how those impacts can then in turn
influence their financial performance and business strategy.
Materiality & Reporting Strategy
One of the reasons materiality is so important, aside from
the foundational importance of ensuring that you're focusing
on the most important things, is that it informs your ESG
reporting strategy.
The key areas of ESG reporting affected by materiality
assessments include:

Bruno Marche, founder of the Economics of Mutuality
platform, argues for the importance of stakeholder capitalism
with this observation:
“Fifty years ago, financial capital was scarce, but natural
resources were overly abundant. Today, it’s just the opposite —
financial capital is overly abundant and natural resources are
scarce. Yet our economic model has not changed. So, there is
something wrong.”
By definition, a double materiality assessment would
include a wide range of issues such as:
• How would external climate risks impact your
financial performance?
• In what ways do your operations contribute to
pollution of air, water, and land?
• Are diversity, equity and inclusion issues
impacting your organization’s ability to attract
or retain top talent?
A major challenge is that materiality is, by its very definition,
context dependent. That means that materiality issues in
ESG vary across sectors, and even across individual facilities.
Company leadership needs to assess materiality based on
the organization’s overall operating context, while also
identifying the unique risks and opportunities for each of
their operating locations.
Disclosure strategy: What information will you disclose to
stakeholders? Materiality is essentially an importance filter
for ESG issues related to your company. This has obvious
implications for your choices of which information to disclose,
since some metrics may be far more material than others.
Stakeholder communications: Stakeholder perspectives
are important to a company because they help determine
the business strategy in light of the issues most material to
its performance. The specific stakeholders involved in this
process, the frequency with which they’d need information,
and even the type of information to be shared will influence
the process of stakeholder communication. You’ll have an
easier time managing stakeholder communications with
ESG software that automatically generates surveys based on
selected topics, which you can then share with anyone who
has important roles in your ESG management system.
Content design: How you design the content of your
reporting directly follows from your disclosure strategy and
consideration of your stakeholder — who are they, and what
information do they most need? You’ll want to structure your
disclosures in a format that’s easy for your stakeholders to read
and understand. To some extent, your choice of content design
may be limited by applicability of ESG disclosure regulations,
or by your selection of a voluntary reporting framework.

© 2022 VelocityEHS | What Are  “Materiality” and “Double Materiality?” 6 of 10


Materiality Matrix Sample
5
4
Importance to Stakeholders
0
0 1
These examples also further demonstrate why materiality
assessments are important, and why they should be one
of your first steps in your pursuit of ESG maturity. It’s difficult
to argue that organizations can execute any of the above
three key ESG management tasks well without first taking
the time to assess the issues most important to the success
of their program.
Materiality Matrix
When sharing your ESG data with stakeholders, you also
need a way to help them understand the issues that are most
important to your ESG strategy and to the business plans
you’ll be using to implement it. That’s where a tool called a
materiality matrix comes in. A sample materiality matrix is
shown above.
The concept is quite straightforward and is based on the
similar concept of a risk matrix in EHS management. As a
refresher, a risk matrix is a visual depiction of the idea that
risk is a product of the likelihood of an accident happening,
and the severity of impact if it happens. A risk matrix plots
likelihood along the vertical (“y”) axis and impact along the
horizontal (“x”) axis, and it’s easy to read and understand,
because the largest risks wind up plotted in the bright red
section in the top right corner, indicating, at a glance, that
those are the biggest risks with the highest priority to control.
A materiality matrix is based on a similar logic, and because
many of your stakeholders are probably already familiar
with reading and discussing risk matrices, they’ll have an
easier time understanding how to apply the concept to
materiality issues.
In a materiality matrix, the y-axis plots importance, and the
x-axis plots impact. ESG issues that have the largest product of
© 2022 VelocityEHS | What Are  “Materiality” and “Double Materiality?”
Environment Governance Social
2 3 4 5
Impact
importance and impact will wind up in the top right quadrant,
just like in a risk matrix. All your stakeholders can then quickly
recognize the issues requiring the most attention. A sample
materiality matrix is shown in the image above.
Modern ESG software makes it much easier to create and
use materiality matrices. The software calculates values for
importance and impact based on materiality survey
responses, then plots subjects from your survey into the
matrix. You can even export the data so you can share the
matrix with stakeholders.
Materiality and ESG Reporting
Frameworks
Of course, you’re going to need to be mindful of the ESG
disclosure framework(s) you’re following, especially if they
are (or will be) mandatory. Your framework is itself a material
consideration, because it’s going to influence or even
constrain your options for metrics and report format, and
even the type of materiality itself you need to use. One thing
that’s potentially confusing about the different ESG reporting
frameworks is that some are based on “value-focused”
reporting, or financial materiality, and others are based on the
double materiality concept.
For example, the draft European Sustainability Reporting
Standards (ESRS) recently published by the European Financial
Reporting Advisory Group (EFRAG) would create mandatory
disclosure requirements for tens of thousands of European
companies based on a double materiality framework.
In contrast, the two draft standards published by the
International Sustainability Standards Board (ISSB) emphasize
enterprise value-focused reporting, or financial materiality.
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That doesn’t mean the approaches to materiality across
frameworks won’t converge over time through continuing
collaboration between the standards setting bodies.
For instance, GRI emphasizes the importance of double
materiality, and GRI works with both EFRAG and ISSB,
and EFRAG has a longstanding advisory relationship with
International Financial Reporting Standards (IFRS) Foundation,
the parent organization of ISSB, as discussed on the
VelocityEHS EHS & ESG blog.
even be required to disclose through a framework like EFRAG’s,
would include environmental metrics concerning discharges
to water and air and their potential impacts.
You can think of ESG maturity as a pyramid in which EHS
management and regulatory compliance form the foundation.
Without that foundation in place, you won’t be able to move
any further toward mature ESG programs, as seen in the “ESG
pyramid” diagram below.

Environmental Compliance software can be a big help

Key Takeaways on Materiality here, giving you visibility and quantifiable information about
the nature of your air emissions and water discharges, and
The different definitions of materiality and the range of issues how concentrations of specific contaminants compare to
to consider mean that you're going to need to be agile to do established limitations. If you use environmental compliance
materiality and ESG well. That will be easier if your tools are software as part of an ESG solution that also includes tracking
agile, too. of GHGs, you’ll be able to maintain all levels of the ESG
pyramid, as shown below.
Modern ESG software that simplifies materiality and double
materiality assessments can provide just the support you
need. ESG Software from VelocityEHS enables you to quickly
build materiality surveys based on selection of topics, and to
easily share the survey with stakeholders inside or outside Full ESG
your organization. The software quickly integrates responses
from survey participants into your materiality assessment, and
even export responses. You can also visually represent your EHS Management+some
assessment findings in a materiality matrix, which prioritizes ESG elements (waste reduction,
the issues that matter most to your company’s ESG strategy. Scope 1 and 2 GHG, DEI)
Best of all, the simple but flexible functionality supports both
materiality and double materiality frameworks and makes it
easy for stakeholders to participate. EHS Management (safety and environmental
compliance, EHS management system)
It’s also important to remember that you’re unlikely to achieve
and sustain ESG maturity unless you’re also keeping up with
your EHS management responsibilities. This is especially
crucial because some of the data companies may disclose, or

Finally, for a recap of major recent developments in the worlds of EHS & ESG, including
publication of a proposed rule by SEC, and the first draft ESG standards from ISSB
and EFRAG and their perspectives on materiality, check out our on-demand webinar,  
“What EHS Leaders May Have Missed: Important Updates During the Past Year.”

While you’re at it, don’t forget to follow us on LinkedIn so you can catch all the latest
updates from the worlds of EHS & ESG, including periodic live events discussing
some of the issues you most need to know about, like proposed ESG standards and
the specific perspectives on materiality they incorporate.

© 2022 VelocityEHS | What Are  “Materiality” and “Double Materiality?” 8 of 10

Additional VelocityEHS Resources on ESG and Materiality
CHECKLIST/INFOGRAPHIC

The EHS & ESG Journey

To get a clear view of where you are today on the EHS & ESG maturity curve,
download our “EHS & ESG Journey” infographic.

CHECKLIST

Implementing an ESG Program: The CEO’s Checklist

To learn six best practices every business leader should follow when
implementing an ESG program, download,  “Implementing an ESG Program:
The CEO’s Checklist.”

GUIDE

Tracking All Three Scopes of Greenhouse Gas

with ESG Software
If you’re looking to better understand sources of GHGs and how software can
help you track all your GHG emissions on a single platform, check out our
guide,  “Tracking All Three Scopes of Greenhouse Gas with ESG Software.”

GUIDE
An Overview of ISO 14001: Using the Standard
to Improve Environmental Management
If you’re looking for information about how materiality assessments function
in the larger context of an EHS & ESG management system, you’ll want to
read our guide, An Overview of ISO 14001: Using the Standard to Improve
Environmental Management.

BLOG AND RESOURCES

Stay Updated
We’re always adding more content to our blog and our resources page, so be
sure to check there often!

© 2022 VelocityEHS | What Are  “Materiality” and “Double Materiality?” 9 of 10

Let VelocityEHS Help!
Our ESG Software, part of our VelocityEHS Accelerate® Platform, makes it easy
for businesses like yours to conduct materiality assessments. You’ll quickly be
able to set up surveys and collect data to help you identify the most important
ESG risks and opportunities for your organization and prioritize your issues
to enable a more strategic focus. You can also organize your assessment data
into a materiality matrix and export the survey responses and matrix data as
needed. By ensuring input from stakeholders on the most relevant aspects of
your business, you’ll also build the engagement and transparency you need to
achieve and maintain ESG maturity.

Our Environmental Compliance software can also give you the visibility and
control you need to manage your most important regulatory tasks, such as Request a Demo
tracking and reporting of air emissions, water discharges, and waste generated
and managed at your facility.

Ready to learn more? Contact us anytime to find out how our software helps
you build an ESG program that works.

Contact us, today!

Toll Free: 1.866.919.7922
Or visit us online at: www.EHS.com

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