Double Materiality Assessment: The Foundation of Your CSRD Report

If there is one concept that sits at the heart of the CSRD, it is double materiality. Before you write a single line of your sustainability report, you need to understand which topics actually matter — both to the world and to your bottom line. That is exactly what a double materiality assessment (DMA) tells you.

This guide walks you through what double materiality means, why European regulators chose this approach, and how to run the assessment in practice.

What Is Double Materiality?

Traditional financial reporting uses a single-materiality lens: information is material if it could influence the decisions of investors. The CSRD flips this on its head by requiring a double perspective:

Impact materiality — How does your company affect people and the environment?
Financial materiality — How do sustainability issues affect your company's financial position, performance, and cash flows?

A topic is reportable under the European Sustainability Reporting Standards (ESRS) if it is material from either perspective — or both. You do not need to meet both thresholds simultaneously.

Why "Double"?

The EU's reasoning is straightforward: investors need to understand financial risks, but society also needs transparency about corporate impacts. By combining both lenses in a single assessment, the CSRD ensures that companies cannot cherry-pick only the sustainability topics that make them look good.

Impact Materiality vs Financial Materiality

Understanding the difference between the two dimensions is critical. Let's break them down.

Impact Materiality

Impact materiality looks outward. You ask: "What actual or potential effects does my company have on people and the environment?"

Impacts can be:

Positive or negative — A renewable-energy company has positive climate impacts; a fast-fashion brand may have negative labour-rights impacts.
Actual or potential — An oil spill that already happened versus the risk of one occurring.
Short-term or long-term — Immediate pollution versus gradual biodiversity loss across decades.

You assess severity using three factors defined in ESRS 1:

Factor	Question
Scale	How serious is the impact?
Scope	How widespread is it?
Irremediability	Can the damage be reversed?

For potential impacts, you also consider likelihood — how probable is it that the impact will occur?

Financial Materiality

Financial materiality looks inward. You ask: "Which sustainability matters create risks or opportunities that could materially affect my cash flows, access to finance, or cost of capital?"

Examples include:

Physical climate risks — flooding that damages warehouses, heat waves that reduce worker productivity.
Transition risks — carbon taxes, shifting consumer preferences, stranded assets.
Opportunities — growing demand for sustainable products, green financing at lower interest rates.

You assess financial materiality based on the magnitude of the potential financial effect and its likelihood.

How to Conduct a Double Materiality Assessment: Step by Step

There is no single mandated methodology, but EFRAG's implementation guidance and market best practice point to a clear process.

Step 1: Map Your Value Chain

Before assessing anything, you need a clear picture of your upstream, own operations, and downstream activities. Think about:

Where do your raw materials come from?
What happens during manufacturing, logistics, and service delivery?
How are your products used and disposed of?

This value-chain mapping determines the boundaries of your assessment. Under CSRD, you cannot ignore impacts just because they happen at a supplier's factory or after your product leaves the shelf.

Step 2: Create a Long List of Sustainability Topics

Start with the full list of topics and sub-topics from the ESRS standards:

ESRS E1–E5 — Climate change, pollution, water & marine resources, biodiversity, resource use & circular economy.
ESRS S1–S4 — Own workforce, workers in the value chain, affected communities, consumers & end-users.
ESRS G1 — Business conduct (corruption, lobbying, payment practices).

For each topic, consider whether it is potentially relevant given your sector, geography, and business model.

Step 3: Engage Stakeholders

Stakeholder engagement is not optional — it is explicitly required by ESRS 1. You should consult:

Affected stakeholders — employees, local communities, supply-chain workers.
Users of sustainability statements — investors, lenders, rating agencies.

Practical approaches include surveys, interviews, workshops, and analysis of grievance-mechanism data. The goal is to gather evidence on which topics stakeholders consider most significant.

Step 4: Score Each Topic on Both Dimensions

For every topic on your long list, rate:

Impact materiality — severity (scale × scope × irremediability) and likelihood for potential impacts.
Financial materiality — magnitude of the financial effect and its likelihood.

Many companies use a 1–5 scoring scale and set explicit thresholds. Document your methodology carefully — auditors will want to see it.

Step 5: Set Thresholds and Determine Material Topics

Define clear cut-off points. Any topic that exceeds the threshold on either dimension is material and triggers the corresponding ESRS disclosure requirements.

A common visualisation is the double materiality matrix: impact materiality on one axis, financial materiality on the other. Topics in the upper-right quadrant are material on both dimensions; topics along either axis may still be material on one.

Step 6: Document Everything

Your sustainability statement must include:

A description of the process you followed.
The stakeholders you engaged and how.
The thresholds you applied.
The list of material and non-material topics, with justifications.

Robust documentation is your best defence during the limited-assurance audit.

Common Pitfalls to Avoid

1. Treating It as a Tick-Box Exercise

A DMA is a strategic process, not a compliance form. If your C-suite is not involved, you are likely missing financial materiality insights that only senior leadership can provide.

2. Ignoring the Value Chain

Many first-time reporters focus exclusively on their own operations. Under CSRD, impacts and risks across the entire value chain are in scope. If your supply chain is in a water-stressed region, water materiality applies to you — even if your headquarters is in Amsterdam.

3. Setting Thresholds Too High

If you set the bar too high, you risk excluding topics that regulators or auditors would expect to see. Benchmark against sector peers and use EFRAG's sector-specific guidance (once finalised) as a sanity check.

4. Skipping Stakeholder Engagement

Some companies rely entirely on internal workshops. ESRS 1 is clear: you need input from affected stakeholders, not just management's assumptions about what matters.

5. Not Updating Annually

Materiality is not static. Regulations change, your business evolves, and new risks emerge. Plan to refresh your DMA every reporting cycle, even if the full exercise is lighter in subsequent years.

How Double Materiality Connects to the Rest of Your CSRD Report

The DMA is not a standalone deliverable — it is the gateway to everything else:

Disclosure requirements — You only need to report on the ESRS topics that your DMA identifies as material. Non-material topics can be omitted (with an explanation).
Targets and metrics — For each material topic, you must disclose policies, actions, targets, and metrics.
Transition plans — If climate change (E1) is material, you need a climate transition plan aligned with the 1.5 °C pathway.
Assurance — Your auditor will review the DMA process as part of limited assurance. A weak DMA undermines the credibility of the entire report.

Getting Started

If you have not begun your double materiality assessment yet, start now — it takes longer than most companies expect. A typical timeline is 8 to 16 weeks, depending on the complexity of your value chain and the number of stakeholders you need to consult.

The good news: once the first DMA is done, subsequent years become significantly easier. You will have the methodology, the stakeholder relationships, and the internal buy-in to update efficiently.

Need help with your double materiality assessment? A specialised CSRD consultant can guide you through the process, benchmark your results against sector peers, and ensure your methodology will hold up under assurance. Find a CSRD expert today.