The IFRS Foundation applies the same definition of information materiality to sustainability-related information as financial accounting information, but with a broader scope. This nuance is crucial for accounting professionals and other reporting practitioners producing general purpose financial reports that include both financial and  sustainability-related information.

As the IFRS Foundation explains in its guide Sustainability-related risks and opportunities and the disclosure of material information, the foundation for applying the IFRS Sustainability Disclosure Standards (IFRS SDS) is the materiality principle — but the materiality of what, exactly? 

Materiality of information, not issues

The IFRS Foundation applies the same capital markets definition of material information to sustainability-related financial information and financial accounting information:

“In the context of sustainability-related financial disclosures, information is material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports, which include financial statements and sustainability-related financial disclosures and which provide information about a specific reporting entity.” (page 10 of the above guide)

There is a very important distinction to underline here: the IFRS Foundation speaks of material information, not material issues. When it comes to applying the IFRS SDS, material issues are the “sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects”. This distinction differentiates IFRS standards from others, such as the European Sustainability Reporting Standards, which define both material matters and material information. 

Same definition, different applicability

While the definition of information materiality is identical for both financial accounting and sustainability-related disclosures, the scope for the latter has been broadened to include:

• longer time horizons
• value chain considerations
• different types of information, such as qualitative, forward-looking, non-financial, and 
• the anticipated financial effects of sustainability performance

This leads to different materiality judgements, in other words different decisions of what constitutes material information to include in sustainability disclosures vs in financial disclosures. As the table below illustrates, what may not qualify as material information for financial reporting purposes may qualify for sustainability reporting purposes.

Sustainability or financial materiality of information determines its location

As we already know, one of the first things companies must do is identify, monitor, and manage sustainability-related impacts, risks, and opportunities that are relevant to them, even though they may or may not directly affect them at the moment. 

Information about these relevant impacts, risks, and opportunities that management deems material to users of general purpose financial reports will be disclosed in sustainability statements or the MD&A.

And any actual or anticipated tangible financial effects from these relevant impacts, risks, and opportunities that qualify for inclusion under generally accepted accounting principles will be disclosed in the financial statements or the MD&A.

Far be it for me to want to complicate things, but you know how we’re always talking about the concept of double materiality – financial (outside in) and impact (inside out) – to identify relevant topics to manage and disclose on? Well, when it comes to disclosures, materiality of information is a tale of two perspectives (or lenses): financial and sustainability. 

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This article is inspired by a two-part article I co-wrote with David Wray, MBA, ACA, CPA and published by the Institute of Chartered Accountant of England and Wales (ICAEW), as part of a series on Connecting Sustainability and Finance.

(Photo by Rachel Claire: https://www.pexels.com/photo/close-up-shot-of-a-telescope-7277025/)