Double Materiality
Double materiality is an accounting principle proposing that entities should not only report on the environmental factors that impact the bottom line of businesses (financial materiality), but also on the material impacts that a company may have on people and the environment (impact materiality).
Before diving into specifics of double materiality, a refresher on materiality may be helpful.

What is material to financial reporting for businesses?
Companies preparing financial statements are required to disclose information that is “material”, meaning its inclusion or exclusion could sway or influence the decisions of investors and creditors. Under both US Generally Accepted Accounting Principles (US GAAP)1 and International Financial Reporting Standards (IFRS)2, materiality is a core concept in financial reporting that is widely understood and applied (see case study below). However, its application to sustainability reporting is rapidly evolving.
It is increasingly accepted that environmental factors can also be financially material to businesses, with serious potential impacts to the value of a company’s assets and stock. For example, consider an increase in the probability of flooding. Since flooding can impact business operations and/or impair the value of real assets in the area, if the risk is significant, it should be disclosed to investors and creditors. Similarly, if there was a looming change to regulations that could impact the viability of a company’s business model (for example, through increases in carbon pricing or stricter pollution controls), investors and creditors might feel that a company has misrepresented their risk exposure if such risks were not disclosed.
The accounting principle of materiality “states that all items that are reasonably likely to impact investors’ decision-making must be recorded or reported in detail in a business’s financial statements.”3 As stakeholders increasingly view environmental and social factors as financially material to corporate performance, the principle of materiality is now invoked to justify disclosing key sustainability indicators. This transparency enables investors and creditors to incorporate environmental and social considerations directly into their investment decisions.
Sample Case Study: Financial Materiality
A tech startup accelerates the recognition of future subscription revenue to bolster its current quarter’s earnings. It doesn’t disclose changes in revenue recognition policy in detail, leaving investors to believe sales growth is organically robust.
Why it is material:
- Investors base their valuation on perceived strong revenue growth and may overpay for the company’s stock.
- When revenue reverts to actual (lower) levels in subsequent quarters, the share price drops significantly, causing losses.
- Lack of clear disclosure about the accounting change misleads stakeholders about the company’s true performance trends.
Where does the "double” in double materiality come in?
More recently, the concept of double materiality has been introduced, asserting that firms must recognize not only how environmental and social factors affect their profitability but also how their operations impact people and the environment. The latter aspect adds a new dimension — impact materiality — which ensures that capital allocators are able to make informed decisions based on a company’s impact on people and the environment. Reporting aligned with double materiality better enables investors and creditors to direct capital toward the long-term transition to net-zero emissions.
How will the concept of double materiality affect financial reporting?
Global Reporting Initiative, one of the most widely used reporting standards supports the concept of double materiality, stating that “double materiality, in essence, reflects the new practical nature of sustainability reporting and the recognition that impact, and financial reporting are interconnected and that reporting ideally should be one holistic process.”4
Notably, the EU’s Corporate Sustainability Reporting Directive (CSRD), which entered into force in 2023, obliges in-scope companies to report in line with the European Sustainability Reporting Standards (ESRS), embedding the principle of double materiality in their disclosures. Initially, up to 1,300 Canadian companies, primarily from the metals and mining industry (94%) were anticipated to be affected by the regulation.5
Although a recent proposal by the European Commission would reduce the number of companies that fall under the scope of CSRD, the European Commission is maintaining its commitment to the principle of double materiality in the proposal.6 In 2024 three stock exchanges in China also mandated ESG reporting that adheres to the principle of double materiality7 demonstrating increasing uptake globally.
Double Materiality Assessment Case Study: Magna International Inc.
Founded in 1957, Magna International is an auto-parts manufacturer with a market capitalization of $9.24 Billion CAD as of April 2025 and significant operations in Europe. Magna International falls within the scope of CSRD and must report in accordance with ESRS according to its 2024 sustainability report.
Magna International outlined the results of their first ESRS-aligned double materiality assessment in its 2024 Sustainability Report and expects to publish its first CSRD reporting in 2028. The result of their double materiality assessment is captured below. The Material topics identified include: *
“Environment
- Climate change adaptation
- Climate change mitigation
- Energy
- Fuel efficiency
- Water
- Direct impact drivers of biodiversity loss**
- Resource inflows, including resource use
- Resource outflows related to products and services
Social
- Working conditions (own workforce and value chain)
- Equal treatment and opportunities for all (own workforce)
- Other work-related rights (own workforce and value chain)
- Personal safety of consumers and/or end-users
Governance
- Corporate culture
* Certain topics, such as cybersecurity and anti-competitive practices, did not meet applicable thresholds under our DMA methodology. Nonetheless, they remain significant priorities for Magna and our activities in these areas are disclosed in this Sustainability Report.
** This category addresses deforestation and phytosanitation”.
Source: Magna International (2024), Sustainability Report
The table below describes some of the major reporting frameworks and their approaches to materiality.
Reporting Framework | Applies to | Voluntary / Mandatory | Materiality Approach |
---|---|---|---|
International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards | Any financial standard setter, regulator, or organization can use the IFRS Sustainability Standards 8 | Voluntary - Some jurisdictions are exploring integration with their legal or regulatory frameworks | Financial Materiality |
Global Reporting Initiative (GRI) | Any organization can use the GRI Standards | Voluntary | Double Materiality |
European Sustainability Reporting (ESRS) Standards | Large EU based companies and companies with significant net turnover in the EU | Mandatory for in-scope EU & certain non-EU companies | Double Materiality |
Basic Guidelines for Corporate Sustainability Disclosure (China) | Companies that are part of the SSE 180 Index, STAR 50 Index, SZSE 100 Index, and ChiNext Index, and all companies that are listed both domestically and overseas | Mandatory for in-scope companies | Double materiality |
As sustainability reporting evolves and more jurisdictions and organizations look to consider double materiality, it becomes increasingly clear that double materiality and, in particular, impact materiality, will become key indicators for efficient capital allocation towards a net-zero future.
- 1For further reading on materiality in U.S GAAP, see C. William Thomas (2016), What’s Material? Don’t Ask FASB (PDF 83KB)
- 2For further reading on materiality in the IFRS, see IFRS (2018), Definition of Material Amendments to IAS 1 and IAS 8 (PDF 95KB)
- 3Harvard Business School Online (2016), What Is Materiality in Accounting and Why Is It Important?
- 4GRI (2024), Double materiality. The guiding principle for sustainability reporting (PDF 264KB)
- 5Institute For Sustainable Finance (2024), EU sustainability reporting requirements: Implications for Canadian business and policy makers (PDF 367KB)
- 6Deloitte (2025), European Commission Proposes Reduction in Sustainability Reporting and Due Diligence Requirements — Considerations for U.S. Entities
- 7UNEP FI (2025), China embarks on a journey of ESG disclosure: 2024 progress and focus for 2025
- 8For example, the Canadian Sustainability Standards Board (CSSB) has published the Canadian Sustainability Disclosure Standards (CSDS), which are based on the ISSB’s sustainability and climate related standards (IFRS S1 and IFRS S2), providing a voluntary framework for organizations to report against.