Before you can write a single line of your CSRD report, you must answer one question: which sustainability topics are material to your business? The double materiality assessment is the process that answers it — and it determines everything that follows.
What is double materiality?
Traditional financial materiality asks: what information would affect an investor's decision about this company? Double materiality asks two questions simultaneously. First — impact materiality: how does your company affect the world (people, environment, society)? Second — financial materiality: how do sustainability issues affect your company's financial performance and position?
A topic is material under CSRD if it is material from either perspective — impact OR financial. You do not need both. A company that causes significant environmental harm must disclose it even if that harm has no current financial consequence. A company facing significant climate risk must disclose it even if current impacts are negligible.
Impact materiality
- ▸How does your company affect the environment?
- ▸How does your company affect workers and communities?
- ▸Are impacts actual (happening now) or potential (could happen)?
- ▸Are impacts positive (value created) or negative (harm caused)?
- ▸Scale: how severe is the impact?
- ▸Scope: how many people or how much of the environment is affected?
Financial materiality
- ▸How do sustainability issues affect your revenues?
- ▸How do they affect your costs and operating margins?
- ▸How do they affect your assets and liabilities?
- ▸How do they affect access to capital and cost of debt?
- ▸What is the likelihood of the financial effect materialising?
- ▸What is the magnitude of the potential financial effect?
§ Key fact
The OR rule — often misunderstood
Many companies wrongly assume a topic must be material from both perspectives to require disclosure. Under CSRD, it is an OR — not AND. If climate change is material from a financial perspective (you face transition risk) but your own emissions are low (low impact materiality), you still must report on climate. The OR rule means more topics end up being material than companies expect.
Why the materiality assessment comes first
The double materiality assessment is not a box-ticking exercise — it is the foundation of your entire CSRD report. It determines which of the 12 ESRS modules you must report on, which data points within each module are required, what targets you must set, and what policies you must document.
A company that skips the materiality assessment and tries to report on everything wastes enormous resources on immaterial disclosures. A company that does it poorly risks excluding material topics — which is an audit failure. Getting the materiality assessment right is the highest-leverage activity in your entire CSRD programme.
12
ESRS topical standards to assess
1,144
Individual disclosure requirements in ESRS
~40%
Avg modules material for large companies
6mo
Time to complete a thorough assessment
The five-step materiality assessment process
EFRAG (the body that wrote the ESRS standards) has published guidance on how to conduct a double materiality assessment. The process has five core steps — each building on the last. Here is how to do each one without a consultant.
Step 1Easy
Understand your business context
Map your value chain from raw materials to end customer. Identify your key business activities, geographies, and relationships. This is your scope boundary for the assessment.
Step 2Easy
Identify sustainability matters
Work through all topics in ESRS 1 Appendix A — the full list of sustainability matters. For each, ask: is this topic potentially relevant to our business?
Step 3Hard
Assess impact materiality
For each relevant topic, assess the severity and likelihood of impacts. Use a scoring matrix: scale (how severe?), scope (how many affected?), irremediability (how reversible?).
Step 4Hard
Assess financial materiality
For each relevant topic, assess the financial effects: risks to revenue and costs, opportunities, effects on assets and liabilities. Score by magnitude and likelihood.
Step 5Medium
Engage stakeholders
CSRD requires stakeholder engagement in the materiality process. Survey employees, customers, investors and affected communities. Their input can elevate or confirm material topics.
Step 6Medium
Document and validate
Document every scoring decision with evidence. The board must approve the materiality assessment. Your auditor will review the process — not just the output.
How to score materiality: the matrix approach
EFRAG recommends using a scoring matrix where each sustainability topic is scored on two axes — impact/financial severity and likelihood. Topics that score high on both axes are clearly material. Topics that score low on both are clearly not material. The middle ground requires judgment — and that judgment must be documented.
✓ Practical tip
Use a 1–5 scale for each dimension
Score each topic from 1 (negligible) to 5 (severe) on severity, and 1 (remote) to 5 (near certain) on likelihood. Multiply the scores. Topics scoring 15 or above are typically material. Topics scoring below 6 are typically not material. The 6–14 range requires judgment and documentation.
Stakeholder engagement: who to involve
CSRD explicitly requires stakeholder engagement in the materiality process. This does not mean you need to survey thousands of people — but you do need documented engagement with key stakeholder groups. The minimum viable engagement covers four groups.
Internal stakeholders
- ▸Board and senior management — strategic risk perspective
- ▸Finance team — financial materiality assessment
- ▸Operations — operational impact identification
- ▸HR — workforce-related topics (S1 module)
- ▸Legal and compliance — regulatory risk topics
- ▸Sales — customer-facing sustainability demands
External stakeholders
- ▸Key investors and lenders — financial materiality
- ▸Major customers — supply chain requirements
- ▸Key suppliers — upstream impact topics
- ▸Local communities near operations — impact topics
- ▸Industry associations — sector-specific topics
- ▸NGOs relevant to your sector — impact topics
Common materiality assessment mistakes
Most first-time CSRD reporters make the same materiality mistakes. The consequences range from audit qualifications to regulatory action. Here are the ones to watch for.
⚠ Important
The most common failure: concluding too little is material
Regulators and auditors see companies consistently under-reporting materiality — marking topics as not material to reduce reporting burden. EFRAG guidance is clear: when in doubt, err toward including a topic as material. An over-inclusive report is less of a problem than a report that omits a material topic.
ESRS E1 checklist
0/8 complete
Map your full value chain before beginning — upstream AND downstream Work through all topics in ESRS 1 Appendix A — do not skip topics early Apply the OR rule — material from either perspective means material Document your scoring rationale for every topic — auditors review process not just output Engage at least 4 stakeholder groups with documented responses Have the board formally approve the materiality assessment Review the assessment annually — materiality changes as your business changes Cross-reference your output with your financial risk register for consistency What a completed assessment tells you
When your double materiality assessment is complete, you have a prioritised list of material sustainability topics mapped to specific ESRS modules. This becomes the table of contents of your CSRD report. Every material topic requires a policy statement, targets, actions and metrics. Non-material topics can be excluded — with a brief explanation of why.
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