Double materiality: what it means and when it concerns SMEs
The company's impacts on the world and the world's on the company: the principle explained proportionately for SMEs.
Double materiality is the principle whereby sustainability reporting must look in two directions: the impacts of the company on the environment and society (impact materiality) and the effects of sustainability topics on the company's economic results (financial materiality). Born in the ESRS standards for large companies, the concept reaches SMEs in a proportionate form.
The two directions, with an example
Take a food SME. Impact materiality: its emissions, water consumption and process waste affect the environment. Financial materiality: the drought that hits agricultural raw materials, the heatwaves that increase refrigeration costs, the ESG demands of large retail affect its accounts. A topic is "material" when it weighs in at least one of the two directions.
What the VSME asks of SMEs
The VSME does not impose on SMEs the full double materiality analysis required by the ESRS: it adopts a simplified and proportionate approach, with predefined indicators. The concept remains useful, however, as a compass: it helps decide which Comprehensive module information makes sense for your company and to respond to clients who, having to apply the ESRS, pass materiality questions on to suppliers.
How to apply it lightly
For an SME three steps are enough: list the environmental and social topics touched by the activity; assess for each the impact outward and the risk toward the accounts (high, medium, low); concentrate data and targets on the topics that turn out to be relevant. The analysis of physical climate risks per site, which Envify calculates automatically, covers the most concrete part of financial materiality.
