What is a Double Materiality Assessment and Why is it Essential in CSRD Reporting?

TL;DR

• Double materiality is the cornerstone of CSRD reporting, requiring companies to assess both how sustainability issues affect them financially and how they impact society and the environment.

• Despite possible timeline shifts in the EU’s Omnibus Package, double materiality remains a non-negotiable part of CSRD compliance.

• Implementing double materiality involves five key steps: identifying issues, engaging stakeholders, assessing impacts, setting thresholds, and reporting clearly.

• Tools like ECO-OS streamline the process, turning complex analysis into actionable insights with AI-powered data collection and visual reporting matrices.

The moment has finally arrived: 2025 marks the first wave of companies filing sustainability reports under the EU’s landmark Corporate Sustainability Reporting Directive (CSRD). Even as the European Commission proposes changes under the Omnibus Package—potentially delaying timelines and narrowing the scope—one thing hasn’t changed: double materiality remains the cornerstone of CSRD compliance. 

Whether your company is reporting this year or preparing for future deadlines, understanding double materiality is essential for credible, decision-useful ESG reporting. This guide breaks down what it means, why it matters, and how to get it right.

The Origins of Materiality: A Financial Concept

Before diving into double materiality, let’s review the concept of materiality itself. Materiality originates from the world of accounting and finance. It involves identifying and prioritizing information that could impact a company's financial performance. These pieces of information are deemed "material" because they are significant enough to affect the company.

In financial audits, the materiality threshold is the level at which accounting errors can compromise the reliability of a company's financial statements. When applied to Corporate Social Responsibility (CSR), this threshold marks the point at which environmental, social and government (ESG) issues become relevant and significant for the company, potentially impacting stakeholders, the environment, or economic performance.

Materiality as a Tool for Prioritization

Whether focusing on financial materiality (or the newly introduced impact materiality), the goal remains the same: identifying the most critical issues for your company and acting upon them. A materiality analysis helps sort through indicators and build a relevant strategy.

Example of a Risk Assessment Matrix

The Insufficiency of Simple Materiality

Previously, materiality focused solely on financial risks and opportunities affecting corporate performance. However, with the introduction of CSRD compliance, a new perspective—impact materiality—has emerged. Impact materiality assesses how a company's operations affect the environment and society, complementing financial materiality to form double materiality.

A Real-World Example: GHG Emissions in the Textile Industry

Consider a textile company whose operations emit greenhouse gases. In the short term, the financial impact of this may seem negligible. However, when thousands of companies follow the same path, the cumulative effect accelerates climate disruptions, leading to:

• Extreme weather events that halt production

• Supply chain shortages and rising costs

• Social displacement affecting labor markets and communities

• Increased operational and regulatory risks

Ignoring these consequences is no longer an option. Businesses that take proactive steps to assess and reduce their environmental impact will be the ones that thrive in a sustainable economy.

What is Double Materiality?

Double materiality is a key concept in sustainability reporting, urging companies to assess their impacts not just from a financial standpoint but also in terms of environmental and social effects. Unlike traditional financial materiality, which focuses solely on risks affecting a company's financial performance, impact materiality considers the broader sustainability impact of business activities.

Double Materiality Involves both Impact Materiality and Financial Materiality

Double Materiality: the Starting Point for CSRD Reporting

Double materiality is a fundamental requirement of sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD).

Introduced by the European Commission, the CSRD is built on the European Sustainability Reporting Standards (ESRS), which outline the compliance framework. These standards make double materiality analysis a prerequisite for CSRD-aligned reporting.

🔎 Key insight: The EFRAG (European Financial Reporting Advisory Group), responsible for developing the ESRS, plays a crucial role in shaping regulations related to double materiality.

By integrating double materiality, businesses can provide transparent, impact-driven sustainability disclosures, ensuring compliance and enhancing corporate accountability.

Who is Affected by Double Materiality?

Companies subject to the Corporate Sustainability Reporting Directive (CSRD) are required to conduct a double materiality analysis. This includes large enterprises, listed companies, and certain SMEs that fall within the directive's scope.

Timeline of When Companies Must Begin CSRD Reporting

Note: The timeline and scope of CSRD implementation may be affected by the recently published Omnibus Package, which is still under review. While this draft law aims to simplify reporting requirements for some companies, double materiality will remain a central requirement of the CSRD reporting process.

[Read more about the Omnibus proposal here.]

5 Essential Steps to Implement Double Materiality

Double materiality is a crucial framework for businesses aiming to assess both financial and impact-driven sustainability factors. Here’s how to successfully implement it in your organization:

1. Map Out Key Issues

Start by identifying all potential material issues. The European Sustainability Reporting Standards (ESRS) provide an official list covering environmental, social, and governance (ESG) factors. A more detailed version is expected soon, offering deeper insights into these topics.

The graphic below illustrates these standards, giving an overview of their structure. Additionally, sector-specific standards are expected to be published in the future, providing even more tailored guidance for different industries, all details can be found on the EFRAG website.

The 12 ESRS Standards, by Category

2. Engage Stakeholders for Insights

Stakeholder engagement is not mandatory, but it’s highly recommended. Direct collaboration helps:

• Anticipate potential controversies

• Strengthen social dialogue

• Enhance strategic decision-making

For example, collaborating with a client committed to climate action can help a company assess its environmental impact more accurately. By engaging in discussions with clients and considering their recommendations, businesses can refine their sustainability strategies, align with business expectations, and improve transparency—key factors in CSRD compliance.

3. Assess the potential impact of each issue

EFRAG provides a structured methodology to evaluate materiality. The key criteria include:

• Impact quality: Positive or negative

• Effect type: Actual or potential

• Severity: Magnitude, scope, and reversibility

• Probability: Likelihood of occurrence

• Timeframe: Short- vs. long-term impacts

  
  

Once assessed, aggregate all impacts to get a company-wide perspective. Weighing results is crucial—adjust them based on the number of stakeholders consulted and company size (e.g., revenue or Full-Time Equivalents, FTE).

4. Define clear thresholds

Set measurable impact thresholds for each category. If an issue surpasses these limits, your company must justify it in a report. Ensure these thresholds are both realistic and aligned with sustainability goals.

For example, consider the issue of carbon emissions. A threshold might be set at a maximum of 500 metric tons of CO2 emissions per year. If emissions surpass this limit, the company must document the reasons and outline corrective actions in a formal report. This approach ensures accountability and drives progress towards sustainability objectives.

5. Compile the Report

Currently, there’s no standardized format for double materiality reports. Companies can use text, tables, graphs, or matrices to present findings. At ECO-OS, we’ve found that visual matrix formats are the most effective, offering clear and actionable insights.

By following these steps, your company can align with evolving sustainability regulations, enhance transparency, and drive meaningful impact.

Conclusion

Double materiality transforms sustainability from a compliance exercise into a strategic advantage—uncovering risks, driving innovation and building stakeholder trust. ECO-OS's ESG reporting software makes this transition seamless by streamlining both “inside-out” and “outside-in” data collection with the help of automated tools and AI assistance, embedding the latest ESRS templates, and delivering interactive matrix visuals that spotlight your most critical ESG issues.

By choosing ECO-OS, you turn a complex double materiality process into a clear, efficient, and value-driving tool—empowering your organization to meet CSRD reporting requirements today and seize sustainability opportunities for tomorrow.

Schedule a call with an ECO-OS expert to see how we can accelerate your compliance journey.