Materiality is one of the most important concepts in sustainability reporting and assurance, but it is also one of the most misunderstood.
Many organisations invest significant time undertaking a materiality assessment to determine which sustainability matters should be included within their reporting. When preparing for assurance, it is therefore natural to ask whether that same materiality assessment will also be used by the assurance provider.
The answer is not quite.
While reporting materiality, double materiality and assurance materiality are closely related, they each serve a different purpose. Understanding those differences can help organisations prepare more effectively for a sustainability assurance engagement.
The International Auditing and Assurance Standards Board (IAASB) has recently published additional implementation guidance on the application of materiality under ISSA 5000, providing further clarification for both organisations and assurance practitioners.
What does materiality mean in sustainability reporting?
Materiality is considered from the perspective of the intended users of the sustainability information.
In simple terms, information is material where omitting, misstating or obscuring it could reasonably influence the decisions made by those users.
The meaning of materiality therefore depends on the reporting framework being applied.
For example:
- IFRS S1 focuses on sustainability-related risks and opportunities that could reasonably influence the decisions of investors, lenders and other creditors.
- GRI focuses on an organisation’s most significant impacts on the economy, environment and people.
- ESRS applies a double materiality approach, considering both sustainability-related financial effects on the organisation and the organisation’s impacts on people and the environment.
Understanding which reporting framework has been adopted is therefore fundamental, as it establishes the context for determining what information is considered material and should be included within the sustainability report.
How should organisations apply materiality?
Before seeking assurance, organisations first need to determine which sustainability information should be reported.
This typically involves identifying:
- The intended users of the sustainability report;
- Their common information needs;
- The sustainability matters that are material;
- The metrics, targets, governance arrangements and narrative disclosures that should be included
- Whether information is material because of its magnitude, its nature or a combination of both.
Selecting the material topics is only one part of the process.
Organisations should also be able to explain how they determined the specific disclosures reported for each material topic and how those decisions align with the applicable reporting framework.
A well-documented materiality process provides the foundation for producing sustainability information that is relevant, complete and capable of being independently assured.
How is this different from assurance materiality?
Although both use the term materiality, the organisation and the assurance practitioner apply it for different purposes.
The assurance practitioner therefore needs to understand the organisation’s materiality process but does not simply adopt or repeat it.
For example, an organisation may correctly identify climate change as a material topic but still:
- Omit a significant emissions source
- Exclude a material climate-related risk
- Make an unsupported statement regarding progress towards a net zero commitment
- Aggregate information in a way that obscures important issues
- Present disclosures that are inconsistent with the supporting evidence
In these circumstances, the materiality assessment itself may be appropriate, while the resulting sustainability information may still contain material misstatements.
Where does double materiality fit?
Double materiality is often confused with assurance materiality, but they are different concepts.
Double materiality is a reporting concept used by certain sustainability reporting frameworks, including ESRS.
It considers sustainability matters from two perspectives:
- Financial materiality – how sustainability matters affect, or could affect, the organisation’s financial position, performance, cash flows, access to finance or cost of capital.
- Impact materiality – how the organisation’s activities affect people, society and the environment.
“Double materiality determines what should be reported. Assurance materiality determines whether the reported information is materially misstated. Understanding the distinction between the two is fundamental to preparing for sustainability assurance.”
– Jose Hopkins, Chartered Accountant and Senior Sustainability Consultant, Acclaro Advisory.
What should organisations do before seeking assurance?
Preparing for assurance starts well before the assurance engagement begins.
Organisations should ensure they can clearly demonstrate:
- The reporting framework or criteria applied
- How intended users and their information needs were identified
- How material sustainability matters were determined
- How financial, impact or double materiality was applied, where relevant
- Why particular disclosures were included or excluded
- The evidence supporting significant judgements;
- How management reviewed and approved those judgements; and
- How the materiality assessment is reflected consistently throughout the sustainability report.
Having this information readily available helps create a more efficient assurance process, supports stronger governance and reduces the likelihood of unnecessary challenge or duplication during the engagement.
How Acclaro can help
Whether you’re preparing for your first sustainability assurance engagement or planning the transition to ISSA 5000, we can support you at every stage of the assurance journey.
- Pre-assurance readiness: Identify gaps in your reporting processes, evidence, governance and internal controls before assurance begins.
- Independent limited assurance: Deliver independent limited assurance over greenhouse gas emissions and other sustainability information in accordance with the applicable assurance standards.
- Post-assurance improvement: Provide practical recommendations to strengthen reporting processes, improve data quality and enhance assurance readiness for future reporting cycles.
If you’d like to discuss how ISSA 5000 could affect your organisation or your next assurance engagement, we’d be pleased to help.
