Materiality
in reporting:A clearer basis
for judgement

Start with what readers need to understand

Reporting teams often face competing pressures. Adding disclosures can help demonstrate completeness, while removing unnecessary detail can make important information easier to find. The challenge is to give readers enough information to understand what matters, with the emphasis and context it deserves.

In financial reporting, information is material when its omission, misstatement or obscuring could reasonably be expected to influence the decisions of investors, lenders and other creditors. As an IFRS Foundation article on materiality explains, information can lose its usefulness when it is difficult to find or understand. A significant uncertainty buried in generic disclosures, for example, may leave readers unable to recognise its implications.

A useful starting question is therefore: what do readers need to understand, and which information will help them do so? Answering it requires attention to the organisation’s activities, exposures and circumstances, as well as the purpose of the report.

Be clear about the materiality perspective

That purpose becomes particularly important when assessing sustainability matters. Different reporting frameworks examine related issues from different perspectives:

• Investor-focused reporting: Under ISSB Standards, the assessment considers sustainability-related risks and opportunities that could reasonably affect the organisation’s prospects, including cash flows, access to finance or cost of capital. It then identifies material information about those risks and opportunities. IFRS Foundation guidance explains this connection.
• Impact reporting: Under GRI 3: Material Topics, material topics reflect the organisation’s most significant impacts on the economy, environment and people, including human rights. An impact can be significant without an immediate financial consequence for the organisation.
• Double materiality: ESRS brings together the financial and impact perspectives. A matter can be material from either perspective or both, as explained in EFRAG’s materiality assessment guidance.

Being explicit about the perspective helps teams gather relevant evidence and explain their conclusions. Stakeholder engagement can reveal impacts, concerns and information needs, but survey rankings alone do not establish what is material under a reporting framework.

Turn broad topics into useful information

Consider a manufacturer operating in a water-stressed region. Identifying “water” as a material topic is only the beginning. An investor-focused assessment might examine the potential for production interruptions, the availability of alternative supplies and the cost of adapting operations. An impact assessment might examine how the manufacturer’s water use affects local communities and ecosystems.

Those assessments lead to more specific reporting questions. Which operations are exposed? How significant are the effects? What is management doing, and what assumptions underpin its response? What remains uncertain? A general commitment to responsible water use gives readers little basis for answering these questions.

Apply a structured judgement process

Moving from a broad topic to specific information requires a structured process. IFRS Practice Statement 2: Making Materiality Judgements provides non-mandatory guidance for IFRS financial statements, organised around four steps:

1. Identify information that could be material, considering the organisation’s circumstances and users’ needs.
2. Assess its materiality, taking account of quantitative and qualitative factors.
3. Organise the information so that it communicates clearly and gives appropriate prominence to important matters.
4. Review the financial statements as a whole to check for omissions, unclear connections or information that has been obscured.

This sequence offers a useful discipline for reporting teams. When applied to sustainability reporting, the assessment must reflect the purpose and criteria of the relevant sustainability framework.

Make the reasoning reviewable

The reasoning behind the assessment also needs to be reviewable. Teams should record the criteria applied, evidence considered, significant assumptions and reasons for including or excluding information. They should identify who reviewed the conclusions and what changes would trigger reassessment.

Finance, sustainability and risk teams can strengthen this process by comparing the evidence and assumptions they use. Where reporting objectives lead to different disclosures, the reasons should be clear. Reviewing these judgements as circumstances change helps keep reporting relevant.