Legal base

Recital 8, article 1 & 2 of accounting directive (2013/34/EU) is the legal base of disclosing material information. Companies shall include in the management report a non-financial statement containing information to the extent necessary for an understanding of the undertaking's development, performance, position and impact of its activity.

Material info

Material information must be assessed in a context. Information that may be material in one context may not be in another. Issues to be considered for inclusion in the non-financial statement are company-specific, taking into account concrete circumstances and sectoral considerations and a company's specificities. Companies within an industry are likely to share similar non-financial challenges, for instance because of the resources they may rely upon to produce goods and services, or the effects they may have on society and the environment.

Wide range of potential issues

Companies are faced with a wide range of potential issues on which they might report. A company must exercise judgment at assessing which information is material, based on its analysis of the relative importance of such information for an understanding of the company's development, performance, position and the impact of its activities. In order to exercise such judgment, the materiality assessment should take into account internal and external factors. 

A bank may consider that its own water consumption in offices and branches is not a material issue to include in its management report. In comparison, the bank may consider that social and environmental impacts of projects that it funds and its role to support the real economy of a region are material information.

It is best practice for companies to disclose relevant information on the government arrangements and processes by which their materiality assessment has been made 

For example, companies implementing a quality management system or an environmental management system (e.g. ISO 14001 or EMAS), or perform an environmental Life Cycle Assessment may rely on them to support their materiality assessment and therefore disclose information on aspects identified as significant through these assessments.

A company having impacts on land use and ecosystem change (for example deforestation) directly or through its supply chain may consider appropriate disclosures on the due diligence applied.

A number of factors may be taken into account

Business model, strategy and principal risks: a company's values, goals, strategies, management approach and systems, tangible and intangible assets, value chain and principal risks should be taken into account.

Main sectoral issues: Similar issues are likely to be material to companies operating in the same sector or sharing supply chains. Topics already identified by competitors, customers or suppliers are likely to be relevant for a company

Interests and expectations of relevant stakeholders: In order to assess material information, companies are expected to engage with relevant stakeholders and seek a good understanding of their interests and concerns. Among others, this may include, as appropriate, investors, workers, consumers, suppliers, customers, local communities, public authorities, vulnerable groups and civil society.

Impact of activities: Companies are expected to consider the actual and potential severity and frequency of impacts in their materiality assessments. This includes impacts of their products, services, and their business relationships (including supply chain aspects or dependencies).

Public policy and regulatory drivers: Current and future trends in regulations and public policies may have an effect on companies' opportunities and risks, and may influence materiality.

A company may consider that impacts through its upstream supply chain are relevant and material issues and report on its upstream impacts and dependencies . Impacts may be direct or indirect. For example a company producing mineral water may consider specific measures taken to protect the hydric resources it relies upon.

Materiality assessments are expected to be reviewed periodically to ensure that matters reported continue to be material overtime 

Reviews should be more frequent in the most dynamic and innovative companies and sectors, or in companies changing and adjusting their business models or policies, including on due diligence, while less so in more stable circumstances. 

A company which is involved in the supply chains of minerals from conflict-affected and high-risk areas may consider appropriate disclosures on the due diligence applied to ensure that it respects human rights by not contributing to conflict