The Carbon Trust
Explained byThe Carbon Trust

Identify the material issues you need to report on

The issues you report on are determined by the information your audience needs to inform their decision-making

Most sustainability disclosures require businesses to report on issues they have defined as material based on a self-conducted materiality assessment. The concept of materiality refers to the process of identifying issues that will impact your company in a way that would affect the decisions of your stakeholders. Different stakeholders will require different information to aid their decisions, so there are different definitions of materiality across the various reporting mechanisms.

Financial materiality

Some reporting frameworks, such as the TCFD and ISSB, define materiality in terms of the importance of information for investors. The ISSB uses the same definition of material that is used in IFRS Accounting Standards; that is, information is material if omitting, obscuring, or misstating it could be reasonably expected to influence investor decisions.

Impact materiality

The GRI defines materiality according to the importance of the information for a wider group of stakeholders. For the GRI, information is considered material if it could influence the decision-making of stakeholders to your business. This may mean reporting on issues that will have an actual or potential significant impact on people or the environment over the short, medium, or long term.

Double materiality

The EU’s CSRD requires disclosure based on a double materiality assessment. This means businesses must report issues that are material from either a financial or impact perspective, or both. The draft reporting standard for the CSRD defines financial and impact materiality as:

  • A sustainability matter is material from a financial perspective if it triggers or could reasonably be expected to trigger material financial effects on your business. This is the case when a sustainability matter generates risks or opportunities that have a material influence or could reasonably be expected to have a material influence on your company’s development, financial position, financial performance, cash flows, access to finance or cost of capital over the short, medium or long term

  • A sustainability matter is material from an impact perspective when it pertains to your company’s material actual or potential, positive or negative impacts on people or the environment over the short, medium or long term. Impacts include those connected with your company’s operations and upstream and downstream value chain, including through products and services, as well as through business relationships. Business relationships include those in your upstream and downstream value chain and are not limited to direct contractual relationships

The elements of your longlist of climate risks and opportunities that you report on are therefore determined by the materiality requirements of your reporting mechanism.