A double materiality assessment is how the CSRD decides what a company has to report. It applies two lenses: impact materiality, the company's actual and potential effects on people and the environment, and financial materiality, how sustainability matters affect the company's development, performance, and position. A sustainability matter is material, and must be reported under the European Sustainability Reporting Standards, if it is material from either perspective. The assessment scopes the entire sustainability statement.
Under the CSRD, companies do not report on every sustainability topic; they report on the ones that are material. The double materiality assessment is how materiality is determined, and because it scopes the whole sustainability statement, it is the first and most consequential step in CSRD reporting. This guide covers what double materiality is, how the two lenses work, and how to conduct the assessment.
What double materiality is
The CSRD, Directive (EU) 2022/2464, requires reporting against the European Sustainability Reporting Standards (ESRS). ESRS 1 sets out the double materiality principle. A sustainability matter is material if it is material from either an impact perspective or a financial perspective. The two are assessed on their own terms, and a matter that is material under either one is in scope.
The two lenses
| Lens | The question it asks |
|---|---|
| Impact materiality | What are the company's actual and potential, positive and negative impacts on people and the environment, over the short, medium, and long term, including through its value chain. |
| Financial materiality | Which sustainability matters generate risks or opportunities that affect, or could affect, the company's development, financial performance, position, cash flows, or access to finance. |
A matter material under impact, financial, or both is reported. The two lenses often overlap, but each is assessed in its own right.
How to conduct the assessment
Step 1: Understand the context and value chain
Map the business activities, relationships, and value chain that frame which sustainability matters could be relevant.
Step 2: Identify sustainability matters
Identify the actual and potential impacts, risks, and opportunities across the ESRS topics, drawing on stakeholder input.
Step 3: Assess impact materiality
Assess the company's impacts on people and the environment by their severity and, for potential impacts, their likelihood.
Step 4: Assess financial materiality
Assess the risks and opportunities by the magnitude and likelihood of their financial effects.
Step 5: Set thresholds and document
Apply materiality thresholds, conclude which matters are material, and document the process and the reasoning, which is itself subject to assurance.
Stakeholder engagement and thresholds
Two parts of the assessment carry most of the weight and most of the scrutiny. Stakeholder engagement is not optional colour: the ESRS expect the company to draw on affected stakeholders and the users of the statement to identify and assess impacts, risks, and opportunities, and the assessment should record whose views were sought and how they shaped the result. An assessment that names no stakeholders reads as desk research.
Thresholds are what turn the analysis into a yes-or-no scoping decision, and they are where consistency is tested. For impact materiality, set thresholds on the severity of the impact, judged by its scale, scope, and how hard it is to remedy, and, for potential impacts, on likelihood. For financial materiality, set thresholds on the magnitude and the likelihood of the financial effect. Write the thresholds down with the reasoning, and apply them the same way across every matter, because an assurance provider will test whether a matter just above the line and one just below it were treated consistently.
Why it matters so much
The double materiality assessment determines the scope of the sustainability statement: the topics reported, the ESRS disclosure requirements that apply, and the data to be collected and assured. A weak or undocumented assessment produces a statement that is either over-scoped and costly or under-scoped and exposed. Scope rules for the CSRD have shifted with the EU's Omnibus changes; the materiality method described here is unaffected, but which companies and timelines are in scope continues to move.
For the wider regime, see the EU CSRD compliance guide and the EU CSRD glossary.
Primary sources
- Directive (EU) 2022/2464 (CSRD) and ESRS 1: Sustainability reporting and the double materiality assessment that scopes it.
- EFRAG IG 1: Materiality Assessment Implementation Guidance: The standard-setter's guidance on conducting the double materiality assessment, including stakeholder engagement and thresholds.