Double materiality
Principle that a company must disclose both the impact of sustainability on its value and its own impact on the environment and society.
Double materiality is the guiding principle of European sustainability reporting, notably the CSRD directive. It requires a company to consider two perspectives. Financial materiality captures how sustainability issues affect the company's value, cash flows and risks. Impact materiality captures how the company's activity affects the environment and society, independently of any financial consequence for it. This dual reading distinguishes the European approach from the historically more financial approach of Anglo-American frameworks. For an insurer, double materiality means it must disclose both its exposure to climate risk, the financial dimension, and the footprint of its underwriting and investments, the impact dimension. The boundary between the two shifts, because a sufficiently severe negative impact generally ends up becoming a financial risk through regulation or reputation.
Under the CSRD, the EU directive of 14 December 2022, an insurer must disclose how climate change threatens its portfolio and how its investments contribute to global emissions.
double materiality, impact materiality, financial materiality
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