Double materiality is a core concept in today's corporate sustainability world - and for good reason. Conducting a double materiality assessment is the first critical step toward complying with the EU's Corporate Sustainability Reporting Directive (CSRD), which requires qualifying companies to report on their sustainability impacts starting from financial year 2024.

The Omnibus I Directive (Directive 2026/470), which entered into force on 19 March 2026, has significantly narrowed CSRD's scope. Only companies with more than 1,000 employees and over EUR 450 million in net turnover are now required to report. Companies below these thresholds can still report voluntarily using the upcoming VSME standard - and many are choosing to do so to meet stakeholder expectations and stay ahead of regulatory shifts.

Whether your company falls within the new mandatory scope or you are preparing voluntarily, understanding the ins and outs of double materiality is essential. This article unpacks the basics and includes a free, in-depth guide to help you kickstart your CSRD preparations.

Why double materiality assessment is a must for companies

Carrying out a double materiality assessment is a mandatory step for all companies affected by the EU's CSRD. Following the Omnibus I Directive, this now applies to large undertakings exceeding 1,000 employees and EUR 450 million in net turnover. For companies below these thresholds, conducting a DMA is still strongly recommended - especially if you plan to report voluntarily under the VSME framework or need to meet expectations from investors and business partners. 

It helps your business to pinpoint which sustainability topics listed in the European Sustainability Reporting Standards (ESRS) are material to your business. It ensures sustainability reports focus on topics that are truly relevant, instead of topics that may align with a company's preferences or perceived importance.

Zooming out, the double materiality assessment plays a critical role within the EU's Green Deal, an initiative set to transform Europe into the first climate-neutral continent by 2050. 

With the European Commission recommending a 90% cut in net greenhouse gas emissions by 2040 compared to 1990 levels, the double materiality assessment becomes a tool for aligning corporate practices with the EU's bold climate ambitions. It motivates companies to ramp up their decarbonization efforts and paves the way for a more sustainable future.

What is a double materiality assessment, exactly?

Not every topic under the ESRS needs to be included in your annual sustainability report - only those deemed "material" to your business. 

A double materiality assessment is a tool for figuring out which sustainability topics must be included in reports. Topics can be material based on how they affect your business's financial performance (financial materiality), how they impact society and the environment (impact materiality), or both.

By evaluating your business from these dual lenses you can focus your efforts on areas that matter most, helping you to comply with the CSRD while also making a positive contribution to the planet.

While this article covers the essential elements of double materiality assessments, it's just a starting point.

For a deeper look into the intricacies including actionable steps to ensure your company not only complies but excels under the CSRD, make sure to download our free guide now.

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The double materiality assessment process at a glance

Here's an overview of how to conduct a double materiality assessment:

1. Identify and engage with stakeholders to understand their perspectives on the company's sustainability impacts. 
2. Compile a list of relevant environmental, social, and governance topics that might affect or be impacted by your organization. 
3. Analyze these topics to define their potential impacts, risks, and opportunities. 
4. Assess the severity and likelihood of these impacts. 
5. Evaluate how these issues might financially affect the company, considering the magnitude and probability of impacts. 
6. Integrate the findings to set thresholds for what is considered material for disclosure.
7. Document and report the assessment process and results, ensuring compliance with the ESRS.

Under the amended ESRS 1, companies can now choose either a top-down or bottom-up approach to their materiality assessment. The top-down approach starts from your business model, strategy, and value chain to derive relevant topics. The bottom-up approach starts from individual IROs and aggregates upward. Both are valid, and companies can combine elements of each.

Key elements of the double materiality assessment for CSRD

There are multiple elements to consider when carrying out your double materiality assessment:

Frequency of assessment

Your company's material topics should be reviewed on an annual basis unless there haven't been any material changes internally or externally.

Impact materiality

Impact materiality, often referred to as the inside-out perspective, looks at how your company's actions influence the environment and society. It involves identifying both the actual and potential positive and negative impacts. 

Calculating thresholds - impact materiality

When assessing impact materiality, it's important to consider characteristics such as scale, scope, irremediability, and likelihood. An evaluation scale of 1 to 5 is typically used for each dimension, from negligible to significant, as well as for the likelihood of these impacts occurring from highly unlikely to highly likely.

You should use quantitative data whenever possible. When quantitative data is not readily available, qualitative insights from stakeholder interviews and research become invaluable. Under the amended ESRS, companies are expected to gather "reasonable and proportionate evidence" to support materiality judgments - meaning enough evidence to support decisions without undue cost or effort, rather than exhaustive data on every topic. It's also important to document the rationale behind your chosen thresholds clearly to streamline the auditing process. 

Financial materiality

Financial materiality, also known as the outside-in perspective, refers to how external environmental and social issues affect your company's financial health. Assessing financial materiality involves analyzing the impacts, risks, and opportunities (IROs) that arise from the ESRS topical standards. Under the amended ESRS, impact materiality and financial materiality should be assessed in an integrated manner rather than in silos - recognizing that sustainability impacts can become financially material over time. 

Calculating thresholds - financial materiality

IROs should be evaluated based on their potential magnitude and likelihood of occurrence in the short (<1 year), medium (1-5 years), and long-term (>5 years). It's good practice to use a Likert scale from 1-5, with magnitude being measured on an insignificant-significant scale, and likelihood being measured on a very low-very high scale.

Stakeholder engagement

Engaging stakeholders is key in the double materiality assessment to ensure you're considering a wide range of sustainability perspectives. This involves gathering insights from your employees, investors, regulators, and community representatives through surveys and focus groups on the materiality of the ESRS topics. 

If your company already conducts stakeholder engagement as part of its due diligence process, the amended ESRS allows you to use those same insights to inform your DMA - there is no requirement to run a separate engagement process specifically for CSRD reporting. Getting this input early on can help you focus on the issues that matter most to people and enrich the relevance and credibility of your reports.

Media/literature analysis

Conducting a media analysis is a vital element of the double materiality assessment. This step ensures you're well-informed about the context of sustainability matters that could impact your reporting and strategic decisions.

It typically involves reviewing media reports, scientific articles, industry benchmarks, and other publications relevant to sustainability matters. 

The integration of ESRS on double materiality

On December 22, 2023, the European Union made a big step forward in sustainability reporting by publishing the first set of the ESRS in the Official Journal of the EU.

Under the umbrella of the CSRD, the ESRS aim to standardize sustainability reporting across the EU, offering a concrete framework for the CSRD's reporting requirements.

In November 2025, EFRAG submitted substantially amended ESRS to the European Commission, with formal adoption expected by summer 2026. The amended standards reduce mandatory datapoints by roughly 57-61%, significantly lowering the reporting burden once a topic is deemed material. Wave 1 companies (reporting on FY2024-2026) continue using the original 2023 ESRS, while the amended standards will apply from financial year 2027 onward.

The double materiality assessment remains essential to the ESRS, providing a structured way to identify which sustainability topics are most material to a business. It also introduces the principle of "fair presentation" - drawn from IFRS S1 - which frames the goal of sustainability reporting as the faithful and balanced communication of material information, rather than exhaustive checklist compliance. 

This important step helps companies comply with both the ESRS and CSRD and focus and report on sustainability topics that are most relevant to their operations and stakeholders.

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How to document and report upon assessment findings? 

Documentation and reporting are critical components of the double materiality assessment process. Clear, comprehensive documentation ensures that the rationale behind materiality decisions is transparent and defensible. For a detailed walkthrough of how to structure your DMA findings, see our guide on how to report and communicate on your double materiality assessment. 

When it comes to reporting, the CSRD and ESRS provide guidelines on how to present your findings - including the five qualitative characteristics of CSRD reporting - ensuring that stakeholders can easily understand and assess your sustainability performance. If you are also preparing for external assurance, our guide on how to get audit-ready for CSRD walks through the practical steps.

Example of a double materiality assessment

Ørsted, a leader in sustainable energy solutions, showcases a double materiality assessment in its 2024 Annual Report. This assessment helps Ørsted prioritize sustainability issues that impact both its business operations and the wider environment and society.

The results are crucial for guiding the company's strategic planning and sustainability reporting, ensuring a focus on the most impactful areas.

To see the double materiality assessment in action, check out Ørsted's 2024 Annual Report for a real-world example of how a large company structures and presents its materiality findings.

Get started with your double materiality assessment with this full guide

While performing a double materiality assessment may seem daunting, it's a crucial step toward aligning your business with today's sustainability expectations and complying with requirements like the CSRD. 

Unsure where to begin? To help you navigate this process, we've created an in-depth guide that covers everything from the basics of double materiality to the specifics of how to document and report on your findings.

So, whether you're just starting on your sustainability journey or looking to enhance your existing practices, download our full guide now and take the first step towards a more sustainable future for your business.