How to Conduct a Double Materiality Assessment for ESRS and CSRD
The double materiality assessment (DMA) is the foundation of every CSRD report. It determines which sustainability topics are material enough to require full ESRS disclosure. Without a rigorous, well-documented DMA, your entire CSRD report lacks defensible basis — and your auditor will ask you to redo it.
This guide explains the two-sided methodology, the process steps, and what satisfactory documentation looks like.
Single vs. Double Materiality
Under traditional financial reporting (IFRS, GAAP), materiality is single — a concept concerned only with information that affects investors' financial decisions.
ESRS applies double materiality, which adds a second perspective:
| Perspective | Question | ESRS term |
|---|---|---|
| Impact materiality | How does the company's activity affect people and the environment (positive and negative)? | Outside-in: company → world |
| Financial materiality | How do sustainability factors affect the company's financial performance, position, and cash flows? | Inside-out: world → company |
A topic is material under ESRS if it is material from either perspective — or both. You do not need a topic to be material in both directions.
Five Steps to a Compliant Double Materiality Assessment
Step 1: Understand the value chain
Before assessing impacts, you need a clear map of your activities, both upstream (supply chain) and downstream (use of products, end-of-life), alongside the relationships and dependencies involved. ESRS 1 requires you to consider impacts across the full value chain, not just direct operations.
At a minimum, document:
- Raw material sourcing and processing activities (upstream)
- Direct manufacturing and service delivery
- Distribution, use phase, and end-of-life (downstream)
- Key geographic footprint
Step 2: Identify potential IROs
IROs are the starting point: Impacts, Risks, and Opportunities related to sustainability topics listed in ESRS 1 Appendix A.
- Impacts: Actual or potential effects on people or the environment (positive or negative, intended or unintended)
- Risks: Sustainability-related financial risks (physical, transition, reputational, legal, systemic)
- Opportunities: Sustainability-related financial opportunities
For each ESRS topic (E1 through G1), generate a longlist of potential IROs. Use internal analysis, peer benchmarking, regulatory signals, and industry guidance (sector-specific standards, GRI sector standards, SASB standards) to make this comprehensive.
Step 3: Assess impact materiality
For each impact on your longlist, score it on:
Actual impacts:
- Severity: Scale (extent of harm/benefit), Scope (breadth of affected people/environment), Irremediability (how hard to reverse)
- Likelihood: N/A for actual impacts (they are occurring)
Potential impacts:
- Severity (same three dimensions)
- Likelihood: probability of the impact occurring
The overall severity and likelihood combine to produce an impact materiality score. Use a consistent scoring matrix (e.g., 1–5 for each dimension). Impacts meeting your threshold are material from an impact perspective.
For positive impacts, score on scale and scope of benefit.
Step 4: Assess financial materiality
For each risk and opportunity on your longlist, assess:
- Likelihood: Probability of the financial effect materializing
- Magnitude: Scale of potential financial effect (relative to revenues, assets, or earnings)
- Time horizon: Short (< 1 year), medium (1–5 years), long (> 5 years)
Risks and opportunities crossing your financial materiality threshold must be disclosed under the relevant ESRS — including quantitative estimates where available.
Step 5: Stakeholder engagement
ESRS 1 requires that affected stakeholders are consulted as part of the DMA. "Affected stakeholders" means those whose interests are directly affected by the company's activities — workers, communities, suppliers, customers, etc.
Acceptable engagement methods include:
- Employee surveys and worker representation bodies (e.g., works council)
- Customer and supplier questionnaires
- Community focus groups or local NGO input
- Expert panel reviews
Document engagement carefully: who was consulted, what questions were asked, how responses were incorporated or overridden (with justification). Auditors will review this evidence.
Scoring Matrix Example
| Impact dimension | 1 | 3 | 5 |
|---|---|---|---|
| Scale | Marginal, individual level | Significant, community level | Severe, societal/systemic level |
| Scope | Few people / small area | Moderate people / regional | Very large number / global |
| Irremediability | Easily reversible | Partially reversible | Irreversible |
| Likelihood | < 10% | 30–60% | > 80% |
Set your materiality threshold before scoring (e.g., potential impacts with score ≥ 9/15 are material). Apply it consistently across all topics and document the rationale.
ESRS vs. GRI 3: Key Differences
Companies already doing GRI-based materiality assessments need to adjust for ESRS:
| Dimension | GRI 3 (2021) | ESRS 1 |
|---|---|---|
| Financial materiality | Optional | Required (dual perspective) |
| Value chain scope | Significant topics | Full value chain required |
| Stakeholder engagement | Affected + interested | Affected stakeholders (primary) |
| Documentation | Summarized | Detailed audit trail required |
| List of topics | Company-defined | Must consider full ESRS topic list |
Your GRI materiality assessment can serve as a starting point, but it needs to be extended with: (1) a formal financial materiality assessment, (2) explicit coverage of all ESRS List of Matters, and (3) an auditable documentation set.
What Auditors Look For
Assurance providers conducting limited assurance on CSRD reports will specifically review:
- IRO longlist: Is it comprehensive? Were all ESRS topics considered?
- Scoring methodology: Is there a documented, consistently applied scoring matrix?
- Stakeholder evidence: Can you show who was engaged and how their input influenced the outcome?
- Threshold rationale: Is the materiality threshold defensible?
- Consistency: Do the disclosed topics match the DMA output? Are any material topics missing from the report?
Keeping the DMA Current
The DMA is not a one-time exercise. You must review and update it annually, considering:
- Material changes in your business model or value chain
- New regulatory developments
- Emerging sustainability risks (e.g., new physical climate data)
- Feedback from stakeholders
Emistra's double materiality module provides a structured workflow for IRO identification, multi-criteria scoring, stakeholder engagement tracking, and a complete audit-ready documentation export — ready for your assurance provider. Start your DMA →