Double materiality and environmental accounting

a representation of the double materiality with stick figures and icons

European (Corporate Sustainability Reporting Directive – CSRD) and international (International Sustainability Standards Board – ISSB) environmental accounting standards are in conflict on a major issue: double materiality.

The fact that the ISSB tries to establish these standards at the international level threatens the more detailed European vision. However, it is the one we need if we want to truly evaluate the environmental performance of companies.

What does the concept of double materiality mean?

What is the position of the ISSB (International Sustainability Standards Board) on this subject, and why is this vision problematic?

In this article, we try to answer all of these questions.

What is materiality?

In accounting, materiality represents the rules for deciding whether and when a piece of information should be taken into account.

According to the current financial accounting system, information is considered material when it exceeds a “materiality threshold“.

Materiality threshold: “The point beyond which economic decisions or judgments based on the financial statements are likely to be influenced.”

In practice, it is often considered that “the decisions that the primary users of general purpose financial statements make on the basis of those financial statements” are those of investors, and in particular of shareholders, who choose whether or not to invest in the company according to its financial results. This view tends to neglect the importance and use of accounting documents by other stakeholders (government, employees, customers, etc).

In the context of ecological accounting (known as ESG), maintaining this view of materiality is particularly problematic. Indeed, some information that is important from an ecological point of view is not material from a financial accounting perspective.

For example, an increase in greenhouse gas emissions or in the number of work-related accidents in a large company will probably not have a material impact on the financial accounts of the company.

The introduction of the term “double materiality”

Faced with this conception of materiality, some European organizations, including EFRAG (European Financial Reporting Advisory Group), proposed to distinguish two types of materiality for environmental accounting:

  • Financial materiality : “A sustainability topic is material from a financial perspective if it triggers financial effects on undertakings.”
  • Impact materiality : “A sustainability topic or information is material from an impact perspective if the undertaking is connected to actual or potential significant impact on people or the environment and is related to the sustainability topic over the short, medium or long term.”

To differentiate these two concepts, we also speak of outside-in materiality for financial materiality and inside-out materiality for impact materiality.
This new concept makes it possible to take into account a greater number of environmental and social information. In addition, it ensures the non-negligence of certain important information in terms of impact for reasons of financial materiality.

The SASB position

The SASB (Sustainability Accounting Standards Board) is a non-profit organization whose purpose is to develop sustainability accounting standards. The model followed is that of IASB (International Accounting Standards Board), the organization that developed the IFRS (International Financial Reporting Standards), which are widely used in Europe today.

In the same way that the IASB has done for financial accounting standards, one of SASB’s goals is to standardize sustainability accounting standards globally. That also includes standardizing the definition of materiality as they define it.

SASB’s approach to materiality is based on traditional, financially oriented definition that is well accepted globally: information that is reasonably likely to be important in making investment decisions.”

In the interest of simplification and standardization, SASB supports the use of a definition of materiality that is identical for financial and non-financial accounting and equivalent to that already used in financial accounting today.

NB : Since June 2022, SASB is part of the ISSB (International Sustainability Standards Board). It is an organization that combines several previously existing organizations (SASB, IRRC, CDSB).

Europe’s position towards double materiality

Europe’s position is favorable to the use of the concept of double materiality, as we can see in the legal texts relating to the publication of extra-financial information by companies. Especially, the CSRD takes up the concept of double materiality previously introduced in the NFRD (Non Financial Reporting Directive).

“The NFRD introduced a requirement for companies to report both on how sustainability issues affect their performance, position and development (the ‘outside-in’ perspective), and on their impact on people and the environment (the ‘inside-out’ perspective). This is often known as ‘double materiality’.”


The definition of materiality is a crucial issue for ESG accounting. Not taking into account double materiality means ignoring a large part of the environmental performance of companies. In Europe, legislation is moving in the right direction, but at the international level, the IASB does not seem to support this practice. Furthermore, it wants to impose standards based solely on a more traditional financial materiality.

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