Impact Materiality

Impact materiality is the aspect of double materiality that focuses on the impact that a company’s activities have on society and the environment. environment, society, and governance.

Impact materiality refers to the “inside-out” effects a business has on people, the planet, and society as a whole, across short, medium, and long-term horizons. These impacts, both positive and negative, are often described in economic terms as externalities. The problem arises when businesses fail to account for the risks associated with these externalities, essentially not “internalizing” them.

Take, for example, the overuse of agricultural chemicals—this can lead to a loss in ecosystem productivity, health issues from chemical accumulation in our food, and even accelerate climate impacts. Or consider a company’s air emissions, which negatively affect human health and the economy. Failing to factor in these risks creates significant problems down the line.

As companies move toward compliance with CSRD regulations and related disclosure requirements, these externalities will become even more crucial to address.

So, how do we measure impact materiality under CSRD? It requires thorough assessments that account for:

• Severity
• Likelihood of impact

Severity is determined by considering:

• Scale of the impact
• Scope of the impact
• Whether or not the impact is remediable

These factors help businesses better understand and mitigate their long-term impact on society and the environment.