Top-down (¶27)
Qualitative considerations may be sufficient to conclude on a topic (AR 19).
The analysis behind the conclusion stays on file.Materiality · thresholds
Materiality threshold: why no standard sets a number, and how to set your own
A materiality threshold is the line a company draws between what it reports and what it leaves out, and no sustainability standard sets that line as a number.
The revised ESRS ask for “appropriate qualitative considerations and quantitative thresholds”, UK SRS S1 specifies none, and GRI leaves the cut-off to the organisation.
The 5% figures people quote come from audit, where they are examples an auditor may consider, so the work is to set your own threshold and record why.
Framework by framework
What each standard says about a materiality threshold
Every framework asks for judgement, and none hands the reporter a number.
What differs is whose decisions the threshold protects: investors under UK SRS and the ISSB, investors and other users under the ESRS, and stakeholders broadly under GRI.
Read each framework’s words
| Framework | What it says | Where |
|---|---|---|
| Revised ESRS | Material impacts, risks and opportunities are determined “supported by appropriate qualitative considerations and quantitative thresholds” | ESRS 1 ¶37 |
| Revised ESRS | “The use of quantitative information or quantitative scoring is not necessarily required. A qualitative analysis may be sufficient” | ESRS 1 AR 13(a) |
| Revised ESRS | Top-down: qualitative considerations may be sufficient; bottom-up: qualitative considerations or quantitative thresholds | ESRS 1 AR 19 |
| UK SRS S1 | “This Standard does not specify any thresholds for materiality or predetermine what would be material in a particular situation” | ¶B19 |
| ISSB | “ISSB Standards do not specify any thresholds for material information or predetermine what information would be material in a particular situation” | Educational material |
| GRI 3 | Define a cut-off point or threshold and document it; “Where to set the threshold is up to the organization” | GRI 3, Step 4 |
The ESRS wording is “and”, so a threshold is expected, but the application requirements make clear it need not be numeric.
Who sets the numberExplore
Module 01 / 04
Revised ESRS
“Appropriate qualitative considerations and quantitative thresholds” (¶37); qualitative may suffice (AR 13).
Module 03 / 04
ISSB
Educational material: no thresholds; not part of the Standards.
Under the ESRS
The ESRS materiality threshold: qualitative, quantitative, or both
The revised ESRS 1 sets the expectation in ¶37 and then relaxes how it is met.
AR 13 says quantitative scoring is not necessarily required, and AR 19 ties the choice to the route the undertaking takes for each topic.
Read the ESRS threshold rules in context
¶37: the undertaking determines which impacts, risks or opportunities are material “based on the criteria in Chapters 3.2.1 and 3.2.2, and supported by appropriate qualitative considerations and quantitative thresholds”.
AR 13(b) adds that the undertaking is not required to perform an exhaustive search for information.
AR 19: “In the ‘top-down’ approach, qualitative considerations may be sufficient to derive a conclusion on materiality. In a ‘bottom-up’ approach the undertaking may use either qualitative considerations or quantitative thresholds, depending on the nature of the impact, available data and other circumstances.”
Whatever is used, ESRS 2 IRO-1 asks for it to be described, so the threshold is part of the disclosed process.
The full method is on the double materiality assessment.
How the topic is assessed
Bottom-up (¶28)
Qualitative considerations or quantitative thresholds, depending on the impact and the data (AR 19).
A recorded scale, applied consistently.Severity and thresholds
Why a severity threshold must not average
A numeric threshold applied to an average of scale, scope and irremediable character can quietly drop a severe impact.
AR 22 says any of the three characteristics can make a negative impact severe, so the threshold has to be tested against each, or against the highest.
Read the other scoring rules that interact with a threshold
Likelihood applies only to potential impacts (¶40), so a threshold expressed as “severity times likelihood” is wrong for an actual impact.
For a potential human rights impact, severity takes precedence over likelihood (¶40), so a low likelihood score cannot pull it below the threshold.
AR 15 allows a severe conclusion without analysing every characteristic, where one is enough.
Positive impacts are assessed on their own and never netted against negative ones (¶44), so they need their own threshold logic.
The impact lens is set out in full under impact materiality.
AR 22 and the thresholdExplore
Module 01 / 04
Scale
How serious the negative impact is, or how beneficial the positive one.
Module 04 / 04
Any one
“Any of the three characteristics … can make a negative impact severe.”
UK SRS and the ISSB
UK SRS: no threshold, judged entity by entity
UK SRS S1 ¶B19 says the Standard “does not specify any thresholds for materiality or predetermine what would be material in a particular situation”.
The test is single (financial) materiality, so any threshold a company uses is calibrated to what could reasonably influence investors, lenders and other creditors.
Read the UK and ISSB position
¶B23 gives an aggregation example: “the aggregate risk—the risk of supply chain disruption from all sources—might be material” even where individual sources are not.
¶B25 says information that is not material need not be disclosed, even where a standard lists it as a minimum requirement.
The ISSB’s educational material says the same of the ISSB Standards: “Materiality judgements are specific to the entity.”
Listed companies report against UK SRS on a comply-or-explain basis for periods beginning on or after 1 January 2027 under PS26/19, and the UK test is set out under UK SRS materiality.
UK SRS S1Explore
Audit is different
Where the 5% materiality threshold actually comes from
The percentages that circulate as “the” materiality threshold belong to auditing financial statements.
In audit materiality, ISA (UK) 320 A8 says an auditor may consider five per cent of profit before tax from continuing operations for a profit-oriented manufacturer, and one per cent of revenue or expenses for a not-for-profit.
Read the audit standard’s own qualifications
A8 continues: “Higher or lower percentages, however, may be deemed appropriate in the circumstances.”
A4 says determining materiality “involves the exercise of professional judgment”, with a percentage of a benchmark as a starting point.
¶9(a) defines performance materiality as an amount set below overall materiality “to reduce aggregation risk to an appropriately low level”, and A13 says it is not a simple mechanical calculation.
¶2 restates the shared idea: misstatements are material if they could reasonably be expected to influence the economic decisions of users, judged by size, nature or both.
None of this transfers to sustainability reporting: the IFRS S1 Basis for Conclusions says sustainability materiality judgements “will inevitably differ” from those for financial statements (BC69).
The audit and accounting meanings are set beside the sustainability tests on materiality explained.
- 1
Overall materiality
Set for the financial statements as a whole (ISA (UK) 320 ¶10).
- 2
A benchmark and a percentage
Often a starting point; a matter of professional judgement (A4).
- 3
Examples, not rules
5% of profit before tax, or 1% of revenue or expenses, may be considered (A8).
- 4
Performance materiality
A lower amount to reduce aggregation risk (¶¶9, 11).
Accounting
The accounting definition has no number either
IFRS 18 Appendix A defines material information as information whose omission, misstatement or obscuring could reasonably be expected to influence decisions of the primary users of general purpose financial statements.
It sets no percentage, and it replaces IAS 1 for annual periods beginning on or after 1 January 2027.
Read where the definition lives now
The IFRS Foundation’s IFRS 18 page says the 2018 definition of material is now in Appendix A and paragraphs B1–B5 of IFRS 18.
For periods beginning before 1 January 2027, IAS 1 ¶7 is still the citation.
UK adoption of IFRS 18 has not been checked for this page, so no UK effective date is stated.
Financial statementsExplore
Module 02 / 04
From 2027
IFRS 18 Appendix A and ¶¶B1–B5, for periods beginning on or after 1 January 2027.
Module 03 / 04
The test
Omitting, misstating or obscuring could reasonably be expected to influence primary users.
Recording it
How to document a materiality threshold for assurance
For a CSRD reporter the threshold is not a private working assumption: the limited assurance opinion covers “the process carried out by the undertaking to identify the information reported” (Accounting Directive Art 34(1)).
ESRS 2 IRO-1 asks for the qualitative considerations or quantitative thresholds used and when the assessment was last updated.
Read a practical documentation checklist
Write down what each point on your scale means, in words, so two people would score the same matter the same way.
Record the cut-off and the reasoning for it, including why it suits your size, sector and users.
Record the exceptions the standard imposes: any one severity factor can make an impact severe, and severity decides for potential human rights impacts.
Keep the date of each review and the changes made, because IRO-1 asks for changes from the previous period.
The rest of the evidence trail is covered under sustainability assurance.
What to keep on fileExplore
Module 03 / 04
The exceptions
Any-one-factor severity; human rights precedence.
GRI
GRI’s materiality threshold: rank, cut off, document
GRI 3 asks the organisation to arrange its impacts from most to least significant and to “define a cut-off point or threshold”.
It says “Where to set the threshold is up to the organization”, and that the organisation should document it.
Read GRI’s threshold logic
GRI 3 adds that significance is assessed relative to the organisation’s other impacts, and that “The significance of an impact is the sole criterion to determine whether a topic is material for reporting.”
For transparency, it says the organisation can provide a visual representation of its prioritisation, which is where many materiality matrices come from; a matrix is a presentation, not a threshold, as set out under the materiality matrix.
GRI’s severity characteristics are the same three the ESRS use, so a GRI-style threshold must also avoid averaging them.
How GRI fits beside the other frameworks is on the GRI Standards page.
GRI 3, Step 4Explore
Module 04 / 04
Document
Document the threshold; a visual of the prioritisation is optional.
Two different thresholds
A size threshold is not a materiality threshold
People often mean two different things by “threshold”: the size test that brings a company into a regime, and the materiality line that decides what it reports.
The CSRD size test, from financial year 2027, is more than 1,000 employees and €450 million of net turnover, both exceeded.
Read why the two must stay separate
UK SRS has no size threshold of its own: the FCA’s PS26/19 applies it, on a comply-or-explain basis, to listed companies in five categories for periods beginning on or after 1 January 2027.
Once a company is in scope, its materiality threshold decides which topics and information it reports.
The two are often confused in supplier questionnaires; the value-chain cap in Directive (EU) 2026/470 is a third, separate limit on what a CSRD reporter may require of a smaller supplier.
Who is in scope is set out under what the CSRD requires, and the standards themselves on the ESRS page.
Scope, then materialityExplore
Module 01 / 04
CSRD scope
From FY2027: more than 1,000 employees and €450 million net turnover, both exceeded.
Module 02 / 04
UK SRS scope
Set by the FCA’s listing rules, not by the Standard: comply or explain from 2027.
Module 03 / 04
Materiality
Decides what an in-scope company reports, never whether it reports.
Module 04 / 04
Value-chain cap
Protects suppliers with 1,000 or fewer employees from over-cap CSRD requests.
Worked example
Setting a materiality threshold: an illustrative company
The company and its numbers are invented; this is an illustration of method, not a recommended scale.
An EU logistics subsidiary of a UK group, in CSRD scope, scores impacts and financial effects 1 to 5.
| Decision | What the company records | Why |
|---|---|---|
| Scale definitions | 1 = negligible … 5 = irreversible harm to health or ecosystems, written out for each factor | Consistency; IRO-1 describes the method |
| Impact threshold | Material if any of scale, scope or irremediable character scores 3 or more | AR 22: any one factor can make an impact severe |
| Potential impacts | Likelihood 3 or more as well, except human rights impacts, where severity decides | ¶40 |
| Financial threshold | Likelihood × magnitude of 9 or more, with magnitude anchored to a stated share of operating profit | ¶50; the anchor is the company’s own choice |
| Qualitative override | Topics concluded top-down are recorded with the strategy analysis, without scores | AR 19 |
| Review | Thresholds re-read at each reporting date; any change explained | ¶34; IRO-1 asks for changes |
The financial anchor is the company’s own: nothing in the ESRS ties financial magnitude to a percentage of profit, and an audit percentage is not a sustainability rule.
The same company reporting under UK SRS would apply only the financial half, calibrated to what could reasonably influence its investors and lenders.
A worksheet to record such a threshold is on the double materiality assessment template.
The instruments by date
Materiality thresholds across the standards that govern them
The audit, accounting and sustainability texts were written at different times for different readers, which is why their thresholds differ.
- June 201601
ISA (UK) 320 revised
Effective for audits of periods commencing on or after 17 June 2016; updated September 2025. - 1 January 202302
- June 202303
- 19 November 202404
ISSB educational material
Restates that the Standards specify no thresholds; adds no requirement. - 25 February 202605
- 21 September 202606
Revised ESRS published
¶37 and AR 13 and AR 19 in the Official Journal; applies from FY2027. - 1 January 202707
Doing it
Setting your materiality threshold, step by step
This is an illustrative order of work, not a sequence any standard prescribes.
- 01 / Framework01
Identify whose decisions matter
Primary users under UK SRS; primary and other users under the ESRS; stakeholders under GRI. - 02 / Scale02
- 03 / Cut-off03
- 04 / Exceptions04
Build in the standard’s rules
Any-one-factor severity; human rights precedence. - 05 / Record05
- 06 / Review06
What goes wrong
Six mistakes with a materiality threshold
Borrowing the audit 5%
A8’s figures are audit examples an auditor may consider; no sustainability standard imports them.
Averaging severity
Any one of scale, scope or irremediable character can make an impact severe (AR 22).
Applying likelihood to actual impacts
Actual negative impacts are assessed on severity alone (¶40).
Assuming a threshold must be numeric
Qualitative analysis may be sufficient (AR 13; AR 19).
Confusing scope with materiality
CSRD scope is 1,000 employees and €450 million from FY2027; materiality decides content, not scope.
Never writing it down
IRO-1 asks for the thresholds, and the assurance opinion covers the process (Art 34(1)).
EFRAG’s guidance
EFRAG’s IG 1 describes an illustrative process for the 2023 ESRS and is non-authoritative; for FY2027 cite the revised ESRS 1 itself.
Its status is set out under EFRAG implementation guidance, and CSRD scope, a separate test, under Directive (EU) 2026/470.
Frequently asked
Questions people ask
What is a materiality threshold?
It is the point a company sets, for its own assessment, above which a matter or a piece of information is treated as material.
In sustainability reporting the standards ask the company to set and use thresholds but do not give a number: the threshold is the company’s own judgement, recorded and applied consistently.
Is there a materiality threshold in the ESRS?
No universal number.
Revised ESRS 1 ¶37 says material impacts, risks and opportunities are determined “supported by appropriate qualitative considerations and quantitative thresholds”.
AR 13 says quantitative information or scoring is not necessarily required and a qualitative analysis may be sufficient, and AR 19 says top-down conclusions may rest on qualitative considerations alone.
Does UK SRS set a materiality threshold?
No. UK SRS S1 ¶B19 says the Standard “does not specify any thresholds for materiality or predetermine what would be material in a particular situation”.
Materiality is entity-specific and judged against the decisions of primary users of general purpose financial reports (¶18), and judgements are reassessed at each reporting date (¶B28).
Do the ISSB Standards set a materiality threshold?
No. The ISSB’s educational material of November 2024 says “ISSB Standards do not specify any thresholds for material information or predetermine what information would be material in a particular situation”, citing paragraph B19 of IFRS S1.
The educational material is not part of the Standards and adds no requirement.
Does GRI set a materiality threshold?
No. GRI 3 asks the organisation to rank its impacts from most to least significant, define a cut-off point or threshold, and document it.
It says “Where to set the threshold is up to the organization.”
Is 5% a materiality threshold?
Not in sustainability reporting.
Five per cent of profit before tax appears in the audit standard ISA (UK) 320, paragraph A8, as an example an auditor “may consider” for a profit-oriented manufacturer, with one per cent of revenue or expenses for a not-for-profit, and higher or lower percentages allowed.
None of the sustainability standards imports a percentage.
What is the difference between audit materiality and sustainability materiality?
Audit materiality is an amount an auditor sets to plan and perform an audit of financial statements (ISA (UK) 320 ¶10), with a lower performance materiality (¶¶9, 11).
Sustainability materiality decides what a company reports.
The IFRS S1 Basis for Conclusions says sustainability materiality judgements “will inevitably differ” from those for financial statements (BC69).
What is performance materiality?
An audit concept: ISA (UK) 320 ¶9(a) defines it as the amount or amounts set by the auditor below materiality for the financial statements as a whole to reduce aggregation risk to an appropriately low level.
A13 says it is not a simple mechanical calculation. It has no counterpart in the sustainability standards.
Can a materiality threshold be qualitative?
Yes.
Under the revised ESRS a qualitative analysis may be sufficient (AR 13), and in the top-down approach qualitative considerations may be enough to conclude (AR 19).
In a bottom-up approach the undertaking may use either qualitative considerations or quantitative thresholds, depending on the nature of the impact and the data available.
Can I average scale, scope and irremediable character against my threshold?
Not safely.
Revised ESRS 1 AR 22 says any of the three characteristics can make a negative impact severe, so a threshold applied to an average can hide an impact that one characteristic alone makes severe.
Test each characteristic, or take the highest.
Do I have to disclose my materiality thresholds?
Under the ESRS, yes in substance: ESRS 2 IRO-1 asks for the process, including “qualitative considerations or quantitative thresholds”, and when the assessment was last updated.
For a CSRD reporter the limited assurance opinion also covers the process that identifies the information reported, so the threshold needs an evidence trail.
Does a materiality threshold decide whether CSRD applies to my company?
No. CSRD scope is a separate size test: from financial year 2027 it covers undertakings exceeding both 1,000 employees and €450 million net turnover.
Materiality thresholds decide what an in-scope undertaking reports, never whether it reports.
Should I change my threshold every year?
Only for a reason.
The revised ESRS 1 asks the undertaking to check at each reporting date whether significant changes affect its conclusions (¶34), and UK SRS S1 ¶B28 requires materiality judgements to be reassessed at each reporting date.
A changed threshold should be explained, because IRO-1 asks for changes from the previous period.
Is there a materiality threshold in IFRS financial statements?
No number.
The definition of material information is now in IFRS 18 Appendix A and ¶¶B1–B5 for periods beginning on or after 1 January 2027 (IAS 1 ¶7 before then): information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions of primary users.
Thresholds come into it through the auditor and through judgement, not through the standard.
Sources
Primary sources
Every figure, date and status on this page traces to the instrument’s owner.
Secondary commentary is never the source for a number.
Checked against 15 sources fromEUR-LexCouncil of the EUEFRAGDepartment for Business and TradeIFRS FoundationGlobal Reporting Initiative
- EUR-LexCommission Delegated Regulation (EU) 2026/1563 — revised ESRS 1 ¶37, AR 13, AR 19, AR 22
“Appropriate qualitative considerations and quantitative thresholds”; quantitative scoring not necessarily required; no number set.
- Council of the EUC(2026) 5010 final, Annex I — the revised ESRS as transmitted
The same text before publication in the Official Journal.
- EFRAGESRS Knowledge Hub — revised ESRS 2, IRO-1
The thresholds used are disclosed as part of the process.
- EUR-LexDirective 2013/34/EU, consolidated 18 March 2026 — Art 34(1)
The limited assurance opinion covers the process that identifies the information reported.
- EUR-LexDirective (EU) 2026/470 (Omnibus I)
CSRD scope from FY2027 — a separate test from materiality.
- Department for Business and TradeUK SRS S1 General Requirements — ¶¶18, B19, B23, B28
“This Standard does not specify any thresholds for materiality.”
- IFRS FoundationSustainability-related risks and opportunities and the disclosure of material information (November 2024)
“ISSB Standards do not specify any thresholds for material information.”
- IFRS FoundationIFRS S1 Basis for Conclusions — BC67, BC69
Sustainability materiality judgements “will inevitably differ” from financial-statement ones.
- Global Reporting InitiativeGRI 3: Material Topics 2021 — Step 4, setting a threshold
“Where to set the threshold is up to the organization.”
- Financial Reporting CouncilISA (UK) 320 (Revised June 2016, updated September 2025) — ¶¶2, 9–11, A4, A8, A13
Audit materiality and performance materiality; percentages in A8 are examples.
- Financial Reporting CouncilISA (UK) 320 — standard page
The current edition and its publication date.
- IFRS FoundationIFRS 18 Presentation and Disclosure in Financial Statements
Effective for annual periods beginning on or after 1 January 2027; replaces IAS 1.
- IFRS FoundationIFRS 18, Appendix A and ¶B1 — definition of material information
The accounting definition, with no number in it.
- EFRAGIG 1: Materiality Assessment Implementation Guidance (May 2024)
Non-authoritative; written for the 2023 ESRS.
- Financial Conduct AuthorityPS26/19 — UK SRS on a comply-or-explain basis
Listed companies in five categories, periods beginning on or after 1 January 2027.
Continue reading
Read next
The units
Impacts, risks and opportunities
The units a threshold is applied to.
The method
The double materiality assessment
The full ESRS method, with a scoring grid.
The hub
Materiality explained
Accounting, audit and sustainability meanings side by side.
The UK test
UK SRS materiality
The UK SRS S1 test paragraph by paragraph.