Double Materiality Assessment
for Not-for-Profit

Double materiality assessment for Not-for-Profit

Not-for-profit entities rarely feature in CSRD discussions, but those meeting the size thresholds (250+ employees, EUR 50M+ turnover, or EUR 25M+ total assets, meeting two of three) fall within scope regardless of legal form. Large charities, foundations, trade associations, and public-interest entities with significant commercial operations must perform a double materiality assessment under ESRS 1.20-33. The assessment process is identical, but the materiality conclusions differ from commercial entities because the entity's core activity is delivering social or environmental outcomes rather than generating profit.

The materiality profile for not-for-profits depends on the nature of their operations. A large international development charity with field operations across sub-Saharan Africa, 2,000 employees, and EUR 80M in annual income will find S3 Affected communities material by definition (its entire mission involves affecting community outcomes). S1 Own workforce covers both headquarters staff and field workers, with specific concerns around duty of care for staff in conflict zones, fair pay relative to the commercial sector, and volunteer workforce management. S4 Consumers and end-users applies where the entity delivers services directly to beneficiaries (education, healthcare, housing). G1 Business conduct is material for entities handling donor funds, given fiduciary obligations, conflicts of interest in trustee boards, and procurement integrity in grant-funded operations. E1 Climate change applies where the entity has significant operational emissions (vehicle fleets for humanitarian logistics, building portfolios, investment holdings). Financial materiality for not-for-profits is assessed through the lens of funding sustainability: climate risk to endowment investments, reputational risk from governance failures affecting donor confidence, and regulatory risk from non-compliance affecting grant eligibility.

Assurance providers find that not-for-profit entities struggle most with the financial materiality dimension. Because their primary objective is not financial return, they sometimes argue that financial materiality does not apply. This is incorrect. ESRS 1.49-50 assess financial materiality through risks and opportunities affecting the entity's financial position, performance, and cash flows. For not-for-profits, this means funding flows, investment returns, operational costs, and financial sustainability. A reputational crisis from a safeguarding failure directly threatens donation income: that is financial materiality. Another common finding is the absence of a formal materiality assessment process entirely. Not-for-profits that have previously published impact reports or sustainability statements often assume those satisfy CSRD requirements without running the ESRS 1.20-33 process.

Not-for-profits should start the assessment by mapping their activities to beneficiary groups. For each activity (service delivery, advocacy, grant-making, investment), identify the sustainability matters that arise and score them using ESRS 1.45-50. Use programmatic data (beneficiary counts, outcome measurements, safeguarding incident records) as evidence for social topic scoring. For environmental topics, use operational data (fleet mileage, building energy, travel emissions). For governance, use internal audit findings, whistleblowing reports, and trustee declaration records.