A practical approach to assess financial materiality

Financial materiality as part of double materiality

The current European Sustainability Reporting Standards (ESRSs) require companies to conduct a materiality assessment in accordance with the double materiality principle. The concept of double materiality includes both the impacts an organization has on the economy, environment, and society (from an impact perspective) and the impacts that these matters have on the organization itself (from a financial perspective). Many companies encounter difficulties when it comes to the financial materiality assessment.

Purpose and audience

The aim of this working paper is to provide practical guidance for the financial materiality assessment of Environmental, Social and Governance (ESG) aspects, based on our project expertise, client experience and the guidelines of the ESRSs. This working paper is designed to be of value for individuals who are well-versed in the double materiality concept, including those focusing on sustainability, risk management, strategy, and finance.

Guiding you through the process

To navigate this process successfully, the financial materiality assessment is divided into several steps (see the graph), including the selection of relevant stakeholders and how to find an optimal approach for engaging with them, the identification of ESG risks and opportunities, the determination of the assessment methodology and materiality criteria, and the preparation of the assessment results. In this working paper, we describe each of these steps and best practices for their application. The effective integration of the results of a financial materiality assessment into your risk management and decision-making processes can yield substantial value for your organization by uncovering previously overlooked ESG-related risks and opportunities, thus enabling you to improve strategic decision-making and minimize your organization's risk exposure.

Financial materiality assessment