Explain double materiality.

Double materiality, central to the EU's CSRD/ESRS sustainability reporting, says a company must assess and report ESG topics from two directions. Impact materiality (inside-out): the company's actual and potential impacts on the environment and society — e.g., its emissions, labour practices, biodiversity effects — regardless of financial consequence. Financial materiality (outside-in): how sustainability matters affect the company's own financial position, performance, cash flows, and value — e.g., transition risk stranding assets, physical climate risk to operations, regulation. A topic is material — and must be reported — if it is material from either perspective, which is a broader test than traditional investor-focused financial materiality alone. This drives the double-materiality assessment that scopes what an entity reports under ESRS, and contrasts with frameworks (like the ISSB's) that focus primarily on financial materiality. The practical implication is a wider reporting scope and the need to engage stakeholders, not just investors.