Double materiality explained

What is double materiality?

Under the ESRS, a company reports on a sustainability matter if it is material from the impact perspective, the financial perspective or both. The two perspectives are linked: an impact on people or the environment often becomes a financial risk later, for example through regulation, litigation or lost customers. The assessment covers the company's own operations and its upstream and downstream value chain, over short, medium and long-term time horizons. See the revised ESRS and who reports under the CSRD. The items assessed are known as impacts, risks and opportunities.

What is impact materiality?

A matter is material from the impact perspective if it relates to the company's material actual or potential, positive or negative impacts on people or the environment. For negative impacts, materiality depends on severity, made up of scale, how grave the impact is; scope, how widespread it is; and irremediable character, whether it can be put right. For potential impacts, likelihood also counts, although for potential human rights impacts severity takes precedence. Impacts include those the company causes, contributes to, or is directly linked to through its business relationships. See impact materiality.

What is financial materiality?

A matter is material from the financial perspective if it triggers or could reasonably be expected to trigger material financial effects on the company: risks or opportunities that affect its development, financial position, financial performance, cash flows, access to finance or cost of capital. They often arise from the company's dependence on natural, human and social resources, such as water or skilled staff. Their materiality is judged by likelihood and the potential size of the financial effects, using the same thinking as materiality in the financial statements but over longer horizons. See financial materiality.

Double materiality: a food manufacturer's assessment

A food manufacturer scores six topics from 1 to 5 on each perspective, using its value chain map, data, and input from staff, suppliers, customers and investors. It sets a threshold of 3: a topic scoring 3 or more on either side is material.

Climate change, its own workforce and packaging are material from both perspectives. Water is material for its impact, because two factories draw on stressed river basins, even though water costs are small today. Business conduct is material financially, because of bribery risk in export markets, though its impacts score lower. Biodiversity falls below the threshold on both sides, so the company does not report it, but documents why, because its auditors will ask. The material topics then decide which disclosure requirements of the topical ESRS apply.

How is the assessment carried out?

Companies typically follow four steps: understand the business, its value chain and affected stakeholders; identify actual and potential impacts, risks and opportunities; assess them against thresholds; and confirm the results with management and the board, recording the reasoning. Stakeholder engagement informs the impact side, and enterprise risk management informs the financial side. The results are reviewed each year and updated when the business changes. See running a double materiality assessment, stakeholder engagement and materiality thresholds and scoring.

What did the revised ESRS change?

Double materiality stays at the centre of the revised ESRS, but EFRAG's revision, which the Commission adopted in 2026, makes it lighter. Companies can take a top-down approach, starting from their business model and strategy and concluding directly on topics that are clearly material or clearly not, rather than assessing every possible impact. For potential negative impacts, prevention and mitigation measures can be taken into account where their effectiveness can be shown. Only material information has to be reported, so non-material datapoints drop out, and the separate analysis of each element of severity is needed only where it matters to the conclusion. See sustainability reporting explained. Wave 1 companies can already use the top-down approach for 2026; see CSRD wave 1 relief. The rules sit in ESRS 1.

How does double materiality compare with the ISSB and GRI?

The ISSB standards use financial materiality only: information that could reasonably be expected to influence investors' decisions. The ESRS financial perspective is broadly aligned with it, so a company reporting under both can reuse much of its work. GRI uses impact materiality, so the ESRS impact perspective builds on the same idea. Double materiality combines the two, which is why ESRS reports often cover more topics than ISSB reports. See IFRS S2. See the GRI Standards.

This guide is general information. It is not tax or legal advice for your situation.