Double Materiality Assessment
United Kingdom

Double materiality assessment in United Kingdom: UK Sustainability Reporting Standards (UK SRS), expected to align with ISSB (IFRS S1/S2)

The United Kingdom is not subject to the EU's CSRD. Following Brexit, the UK is developing its own sustainability reporting framework through the UK Sustainability Reporting Standards (UK SRS), endorsed by the FRC and developed by the UK Endorsement Board. The government confirmed in its February 2025 policy statement that the UK SRS will align primarily with the ISSB standards (IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2 Climate-related Disclosures) rather than with the EU's ESRS. This is a significant divergence from the double materiality approach used in Europe. IFRS S1 uses a single materiality lens focused on investor decision-usefulness (financial materiality), not the dual impact-and-financial approach mandated by ESRS 1.20-33. UK entities with EU subsidiaries or EU-listed securities may still need to perform a double materiality assessment under CSRD for their EU reporting obligations, even if their UK reporting uses single materiality. The practical consequence for UK entities is a split reporting reality. Entities reporting only under UK SRS assess materiality from the investor perspective: does this sustainability matter create a financial risk or opportunity that would influence the decisions of primary users of financial statements? Entities also subject to CSRD (because they have large EU subsidiaries or are listed on an EU regulated market) must additionally assess impact materiality under ESRS 1.43-44. Running both assessments in parallel is possible but requires clear documentation of which methodology applies to which report. The FRC has signalled that it expects entities to explain their materiality determination process clearly, drawing on the existing requirements in IAS 1 and the FRC's own guidance on materiality in financial reporting.

Regulatory context: Financial Reporting Council (FRC)

The FRC, as the UK's audit and corporate governance regulator, will oversee compliance with UK SRS once the standards become mandatory. The Department for Business and Trade confirmed in 2025 that mandatory application will begin with the largest UK entities (those currently subject to the Streamlined Energy and Carbon Reporting regime, SECR) before extending to other entities in scope. The exact effective date and phasing remain subject to secondary legislation. The FRC's existing work on sustainability assurance provides context for what it expects. The FRC published its revised Ethical Standard for auditors in 2024, which includes provisions on sustainability assurance independence. The FRC has also endorsed ISSA 5000 (General Requirements for Sustainability Assurance Engagements), issued by the IAASB, as the basis for sustainability assurance in the UK. Limited assurance will be the initial requirement, with a transition to reasonable assurance over time, mirroring the EU's approach under CSRD Article 34. For materiality assessment specifically, the FRC has not issued dedicated guidance on double materiality because the UK SRS framework does not use that concept. However, the FRC's thematic reviews of TCFD disclosures (published annually since 2022) have consistently flagged that entities' materiality determinations lack rigour. The FRC's 2023-24 TCFD review found that 45% of reviewed entities did not explain how they determined which climate risks were material. This signals that even under a single-materiality framework, the FRC expects a documented, evidence-based process with clear thresholds and stakeholder input.

Practical guidance for United Kingdom

UK entities preparing for UK SRS should build a materiality assessment process that satisfies IFRS S1 paragraphs 17-19 on materiality. Start with the entity's existing risk management framework and identify sustainability-related risks and opportunities across short, medium, and long-term time horizons. For each identified matter, assess whether it could reasonably be expected to influence the decisions of primary users of the entity's general-purpose financial reports. This requires quantification where possible: what is the potential financial impact on revenue, costs, assets, liabilities, or cost of capital? For UK entities also subject to CSRD, the practical approach is to run a single assessment process that captures both dimensions. Start with the broader scope (ESRS double materiality, which includes impact materiality) and then map the results to the narrower UK SRS scope (financial materiality only). This avoids running two separate processes and ensures that the CSRD assessment captures everything the UK SRS requires. Document the mapping between the two frameworks clearly, noting where a topic is material under CSRD but not under UK SRS (because it has impact materiality but not financial materiality). Entities should use existing TCFD disclosures as a starting point for climate-related materiality. The UK's mandatory TCFD reporting requirements (for premium-listed companies, large private companies, and LLPs) have been in force since 2022, providing a foundation of climate risk data that feeds directly into both IFRS S2 and ESRS E1 assessments.

Audit expectations

The FRC expects assurance providers performing sustainability assurance under ISSA 5000 to evaluate the entity's materiality determination as part of the engagement. This includes assessing whether the entity has applied the correct materiality concept (single materiality for UK SRS, double materiality for CSRD if applicable), whether the process is documented with clear criteria and thresholds, whether stakeholder input was obtained where required, and whether the conclusions are consistent with the evidence. For entities subject to both UK SRS and CSRD, the assurance provider must understand both frameworks and assess compliance with each. The FRC has indicated that it will inspect sustainability assurance engagements as part of its audit quality review programme, applying the same risk-based inspection approach it uses for financial statement audits. Early inspection findings from TCFD assurance engagements suggest the FRC focuses on the completeness of risk identification, the rigour of scenario analysis, and the consistency between disclosed risks and the entity's financial statements.

United Kingdom-specific considerations

The UK's divergence from ESRS creates specific challenges for groups with operations in both jurisdictions. A UK-headquartered group with a large German subsidiary must prepare CSRD-compliant sustainability statements for the German subsidiary using ESRS (including double materiality), while the UK parent reports under UK SRS using single materiality. The two reports will use different materiality concepts, different disclosure standards, and potentially different assurance standards. Groups should invest in a single data collection process that serves both reporting obligations, even if the reports themselves differ. The UK's Modern Slavery Act 2015 creates a separate disclosure obligation that overlaps with ESRS S1 and S2 workforce topics. UK entities already preparing modern slavery statements should map that data to ESRS social disclosures for efficiency. Similarly, the UK's mandatory gender pay gap reporting and ethnicity pay gap reporting (voluntary but increasingly expected) provide evidence inputs for S1 diversity and pay equity assessments. The FRC's Corporate Governance Code (2024 revision) includes provisions on sustainability governance that anticipate UK SRS. The Code expects boards to assess the entity's impact on the environment and society as part of their governance responsibilities, which creates a practical overlap with the impact materiality concept even though UK SRS formally uses single materiality.

Common inspection findings

The FRC's 2023-24 TCFD thematic review found that 45% of reviewed entities did not adequately explain how they determined which climate-related risks were material, indicating weak materiality assessment processes.

The FRC identified that many entities disclosed climate risks in their sustainability reports that were not reflected in the financial statements, suggesting a disconnect between sustainability materiality assessments and financial reporting judgements.

The FRC flagged that scenario analysis in TCFD disclosures was often limited to qualitative narratives without quantified financial impacts, a weakness that will carry over into IFRS S2 compliance.

The FRC's audit quality inspection reports noted that auditors were not consistently challenging management's climate-related assumptions in financial statement audits, despite material climate risk disclosures in the same annual report.

The FRC observed that UK entities with EU operations were not consistently preparing for CSRD's double materiality requirements, creating a risk of non-compliance when EU subsidiaries enter the CSRD reporting population.