Materiality thresholds and scoring

Scoring turns a long list of sustainability matters into a short list of material topics, and the threshold decides where the line falls. Both involve judgement, and both are now examined by assurance providers, who ask how the scales were defined, why the threshold sits where it does, and whether a slightly different choice would change the result. This guide explains how impacts, risks and opportunities are scored, works through six impacts against a threshold, and covers how to set and test thresholds, common mistakes, and whether to present the result as a matrix.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 4 minute read.

Short answer

Materiality thresholds are the cut-offs a company uses to decide which impacts, risks and opportunities are material, after scoring each one. For negative impacts, the ESRS judge severity by scale, how grave; scope, how widespread; and irremediable character, how hard to remedy; potential impacts are also scored for likelihood, but for potential human rights impacts severity takes precedence over likelihood. Positive impacts are scored on scale, scope and, if potential, likelihood. Risks and opportunities are scored on the magnitude of their potential financial effect, often in bands linked to EBITDA, revenue or equity, and their likelihood. The ESRS do not prescribe scales or numbers, so companies set their own, typically scoring each factor from 1 to 5, and must explain them. Good practice is to calibrate thresholds against known cases, allow documented qualitative overrides, test how results change if the threshold moves, and keep the method stable from year to year. In this guide's example, 3 of six impacts are material at a threshold of 40 out of 75.

At a glance

Severity factors
Scale, scope, remedy
Potential impacts
Add likelihood
Human rights
Severity takes precedence
Financial side
Magnitude and likelihood
Thresholds
Set and explained by you
Good practice
Test the sensitivity
Materiality thresholds and scoringSeverity factors: Scale, scope, remedy; Potential impacts: Add likelihood; Human rights: Severity takes precedence; Financial side: Magnitude and likelihood; Thresholds: Set and explained by you; Good practice: Test the sensitivity.KEY FACTS AT A GLANCEMateriality thresholds and scoringSeverity factorsScale, scope, remedyPotential impactsAdd likelihoodHuman rightsSeverity takes precedenceFinancial sideMagnitude and likelihoodThresholdsSet and explained by youGood practiceTest the sensitivityTax BakersMateriality thresholds and scoringSeverity factors: Scale, scope, remedy; Potential impacts: Add likelihood; Human rights: Severity takes precedence; Financial side: Magnitude and likelihood; Thresholds: Set and explained by you; Good practice: Test the sensitivity.KEY FACTS AT A GLANCEMateriality thresholds and scoringSeverity factorsScale, scope, remedyPotential impactsAdd likelihoodHuman rightsSeverity takes precedenceFinancial sideMagnitude and likelihoodThresholdsSet and explained by youGood practiceTest the sensitivityTax Bakers
Key facts at a glance, as set out in this guide.

What are materiality thresholds?

A threshold is the score above which a matter is treated as material and reported. A company needs one for impacts, based on severity and likelihood, and one for risks and opportunities, based on financial magnitude and likelihood; a matter is material for the sustainability statement if it passes either. The ESRS leave the scales and thresholds to the company but require it to describe its methodology, including the thresholds used. See double materiality explained.

How are impacts scored?

Each severity factor gets a defined scale. For example, scale might run from 1, a minor and temporary effect, to 5, loss of life or irreversible ecosystem damage; scope from 1, a handful of people or one site, to 5, many thousands of people or a whole region; and irremediable character from 1, easily put right, to 5, impossible to remedy. Likelihood runs from 1, very unlikely, to 5 for an actual impact. Any one severity factor can make an impact severe, so methods that average the factors should include an override for extreme scores. See impact materiality.

How are risks and opportunities scored?

Magnitude is usually scored in bands of potential financial effect, for example 1 below 0.5% of EBITDA and 5 above 5%, over the relevant time horizon, and multiplied by a likelihood score. Bands linked to measures already used in enterprise risk management make the results easier to reconcile with the company's risk register. See financial materiality.

Materiality thresholds in practice: scoring six impacts

A manufacturer scores six negative impacts. Severity is the sum of scale, scope and irremediable character, each from 1 to 5, giving 3 to 15, multiplied by likelihood, giving a maximum of 75. Its threshold is 40, and any potential human rights impact with severity of 12 or more is material whatever its likelihood.

ImpactActual or potentialSeverityLikelihoodScoreMaterial?
Greenhouse gas emissionsActual13565Yes: score at or above threshold
Water use in a stressed basinActual8540Yes: score at or above threshold
Forced labour in the supply chainPotential13226Yes: human rights severity takes precedence
Packaging wasteActual7535No: below threshold
Noise near one plantActual4520No: below threshold
Customer data breachPotential8324No: below threshold
Impact scores against a threshold of 40 (out of 75)Impact scores against a threshold of 40 (out of 75)65Emissions40Water26Forced labour35Packaging20Noise24Data privacyMaterialNot material
Forced labour is material on severity despite its lower score.

Emissions and water pass the threshold. Forced labour scores only 26 because the company judges it unlikely among its current suppliers, but its severity of 13 makes it material. Packaging waste, at 35, falls just below. Testing the threshold shows how sensitive the result is: at 35, 4 impacts would be material, adding packaging; at 45, 2, dropping water. The company keeps 40, which it calibrated against impacts it already manages, and records the sensitivity and its reasoning. See stakeholder engagement for materiality.

How should a threshold be set?

Define each point on each scale in words, so different assessors score consistently. Calibrate the threshold against matters the company clearly knows to be material or not. Allow qualitative overrides, such as for human rights or legal requirements, and document each one. Test sensitivity and look closely at items near the line. Have the method approved through governance, and keep it stable from year to year so that changes in results reflect changes in the business, not the method. EFRAG's implementation guidance on materiality supports this kind of approach without prescribing numbers. See running a double materiality assessment.

What are common scoring mistakes?

Averaging away an extreme severity factor; netting positive impacts against negative ones; scoring at too broad a level, such as climate as a whole, which hides the specific impacts; using survey popularity as a score; using different scales in different business units; and setting the threshold after seeing the results, so it produces the list management wanted. Each is something an assurance provider will look for. See getting ready for sustainability assurance.

Should the result be shown as a materiality matrix?

A matrix plotting impact against financial scores is a familiar way to present the result, but it is not required. The ESRS require a list of material impacts, risks and opportunities and a description of the process. A matrix can mislead if it implies precision the scores do not have, so a clear table with the reasoning for items near the threshold is often more useful. See impacts, risks and opportunities.

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Questions people ask

What is a materiality threshold?

The score above which an impact, risk or opportunity is treated as material and reported, set and explained by the company.

How is severity scored under the ESRS?

By scale, scope and irremediable character, often each on a scale of 1 to 5, with likelihood added for potential impacts.

Do the ESRS prescribe materiality scales or thresholds?

No. Companies set their own and must describe the methodology and thresholds used.

Should materiality thresholds be tested for sensitivity?

Yes. Showing how the results change if the threshold moves helps explain judgements near the line.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. Commission Delegated Regulation (EU) 2023/2772, ESRS 1 General requirements, including double materiality
  2. Ropes & Gray: EFRAG materiality assessment implementation guidance (IG 1), key points
  3. EFRAG Knowledge Hub: revised ESRS 1 General requirements, delegated act version
  4. EFRAG Knowledge Hub: revised ESRS 2 General disclosures, delegated act version
  5. Global Reporting Initiative: the GRI Standards

Rules and fees change. If you are reading this long after October 11, 2026, confirm the figures with the source before you rely on them.

SustainabilityRunning a double materiality assessmentSustainabilityImpact materialitySustainabilityFinancial materiality

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