Double materiality is a way of identifying important sustainability topics from two perspectives: impact materiality (how the business affects people and the environment) and financial materiality (how sustainability issues affect cash flows and enterprise value). It is a requirement of the European Sustainability Reporting Standards (ESRS) under the CSRD.
Key takeaways
- GRI 3 focuses on impact materiality; the ISSB focuses on financial materiality; ESRS requires both.
- A topic is material if it meets the threshold in at least one dimension.
- The assessment determines what the report covers — and what it does not need to cover.
The two dimensions of materiality
| Dimension | Question | Example |
|---|---|---|
| Impact (inside-out) | How does the business affect the environment and people? | Discharges affecting community water sources |
| Financial (outside-in) | How do sustainability issues affect the business? | Drought disrupting production and increasing costs |
Five steps to a materiality assessment
- Understand the context: the value chain, activities and stakeholders.
- Draw up a list of potential topics from sector standards, competitors, customer requirements and the news.
- Assess impacts by severity (scale, scope, remediability) and likelihood.
- Assess financial effects by magnitude and likelihood over the short, medium and long term.
- Validate and approve: consult stakeholders and have the Board approve the list of material topics.
Common mistakes
- Relying only on opinion surveys, without analysing data and the value chain.
- A list that is too long, with every topic deemed "material".
- Not updating the assessment when the business changes its business model or markets.
The materiality results are the backbone of the ESG report and of applying the ISSB standards.
Frequently asked questions
Is the materiality matrix still used?
It can be used for presentation, but modern standards place more emphasis on the assessment process and thresholds than on the matrix graphic.
How often should materiality be reassessed?
Common practice is to review it annually and carry out a full assessment when there are major changes in operations, markets or regulations.
Do Vietnamese businesses need double materiality?
It is necessary for businesses in the value chains of EU customers or that want to report under multiple standards; for other businesses, it remains a comprehensive and recommended approach.
VietESG — Independent ESG rating organisation. Ratings based on disclosed data, supporting evidence and a public methodology aligned with GRI and the SDGs.
