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Understanding Double Materiality for the CSRD

The Double Materiality Assessment: Analyzing Impacts, Risks, and Opportunities across ESG Topics for Companies

The Corporate Sustainability Reporting Directive (CSRD) has recently put the concept of materiality as a sustainability concept under the spotlight. The double materiality assessment is key to fulfilling the new EU-wide obligations for non-financial reporting. It is essential for companies to understand the requirements of the double materiality assessment on a more fundamental level. But its abstractness, and slightly varying definitions depending on the relevant sustainability standard, can make it sometimes difficult to grasp as a concept. Read on to learn more about double materiality.

Compass: Understanding the Double Materiality Assessment for the CSRD
© Lukas Gojda -

What is double materiality?

The concept of materiality in sustainability analyzes if and in what ways your company has made material impacts on the outside world, regarding environmental, social, and governance (ESG) matters. For double materiality, the reverse is also true in that it also analyzes if and how the outside world impacts your company.

To conduct a double materiality assessment, companies must identify material sustainability matters. This includes an in-depth analyses of business activities and relationships, such as products or services, business locations or value chain details. Understanding the relevant legal and regulatory landscape, as well as examining external sources, such as media reports is also an important aspect to consider when conducting the double materiality assessment. This serves as a basis for the identification of material sustainability matters. Ideally, this is done with a sustainability expert, who can inform you on which documents are required, and conduct a stakeholder analysis (internal, external, and connected stakeholders).

For the CSRD, there is a more specific definition. The European Financial Advisory Group (EFRAG)​ defines a double materiality assessment as such:

“The materiality assessment is the process by which the undertaking determines material matters and material information to be reported on in its sustainability statement. The performance of an objective materiality assessment is pivotal to sustainability reporting which shall include relevant and faithful information about all impacts, risks and opportunities (IROs) across environmental, social and governance matters determined to be material from the impact materiality perspective or the financial materiality perspective or both.”​

– EFRAG (2023). Implementation guidance for the materiality assessment​

But what exactly are material matters? Let’s take a look at the impact materiality and financial materiality perspectives:

-> Impact Materiality

This perspective is called the Inside-Out Perspective, and it encompasses actual or potential positive or negative impacts on people or the environment over the short-, medium- or long-term.

-> Financial Materiality

This perspective is also known as the Outside-In Perspective. It assesses generated risks or opportunities that influence the cash flows, development, performance, position, cost of capital or access to finance in the short-, medium- or long-term.

Together, these two perspectives constitute a Double Materiality Assessment, creating a better picture of your company’s past, present, and future ESG performance for your own company and for your stakeholders.

What is a Double Materiality Assessment? Inside-out and Outside-In Impact Graphic

Why is a double materiality assessment important for the CSRD?

A double materiality assessment is important because it identifies the primary material sustainability matters for your company and which of the corresponding European Sustainability Reporting Standards (ESRS) that you are required to report on under the CSRD.

Often the CSRD, or another reporting mechanism, is what triggers the materiality assessment process in companies and is why it is primarily discussed in this context. However, the usefulness of a double materiality assessment is not limited to ESG reporting, and companies stand to benefit the most when they do not view the assessment as just another box to be ticked off.

Because double materiality looks beyond a company’s own operations, including the entire value chain, this can help to uncover possible risks & opportunities in your business operations. A professional Double Materiality Assessment is an essential prerequisite to develop strategies to minimize these risks, protecting your company for the long-term, and to take advantage of possible opportunities.

Double Materiality Example

One of the main advantages of carrying out a double materiality assessment for sustainability reporting is how it can help to reduce the complexity: the CSRD contains over 100 topics. But which areas of sustainability reporting are actually relevant for your company? The double materiality analysis helps to answer this question.

While there are many topics to assess for the double materiality assessment, to better understand, let’s imagine an example of one material topic for a software company. We first look at the company’s impact on the outside world for its impact materiality:

Impact materiality: The software company operates energy-intensive data centers to host and manage the software. This contributes to a significant carbon footprint, leaving a negative impact on the environment.

We then assess how the outside world might impact the software company.

Financial Materiality: As energy costs rise, the software company may incur higher operational expenses for maintaining these data centers. This could have an impact on the company's bottom line and competitiveness in the market.

By putting the impact and financial materiality perspectives together, we have a clear picture of the company’s impact regarding this topic. We understand the company’s energy intensive data centers impact the outside world, and the potential risks of maintaining these centers. So while this gives us a good impression for one topic, how do we maintain a complete overview of all relevant topics and influencing factors? We can only do this by examining all aspects individually and defining threshold values for relevance. The result can then be presented in a matrix of double materiality.

Signs pointing the way: Next steps for the CSRD

The Double Materiality Matrix

The results of the double materiality assessment can be shown in a matrix to create a clearer overview of which topics are relevant to your company and which of the European Sustainability Reporting Standards (ESRS) need to be reported on for the CSRD.

There is no one set, defined way to create a double materiality matrix under the CSRD. However, to prioritize topics, it is important to first determine the proper thresholds. This is best done with experts who know how to best analyze the individual topics’ severity, scope, irremediability, likelihood, and the potential of risks and chances. The following is an example of a double materiality matrix that First Climate consultants prepared, encompassing the ESG topics and mapping them based on impact.

Double Materiality Matrix Example with Material Sustainability Matters

In this example, topics that land in the dark and light blue section of this matrix should be reported on in the CSRD. Topics with low impact on both axes (the grey area) do not have to be reported on.

This is exactly why the double materiality assessment is the core of the CSRD report. It acts essentially as a compass to point you to the topics and the ESRS that your company needs to report on, and which topics you do not have to prioritize.  

How long does the double materiality assessment process take?

The double materiality assessment process varies depending on a company’s business context, size, and relevant stakeholders. That is why it is important to start as soon as possible, to thoroughly understand your business context and assess it accurately. If your company has not conducted a materiality assessment in the past, the first assessment will always be more time-consuming. We can work closely with you on this step to accurately collect and analyze data.

How often should a company conduct a double materiality assessment?

This varies from company to company, but generally, a company should conduct a double materiality assessment every 2-3 years. 

However, if your company undergoes significant changes or growth that could substantially affect its impact in various ways, this might call for an earlier fresh look at your company’s double materiality. Global events can also affect when you need your next double materiality assessment. The energy crisis in Europe in 2021, for example, transformed energy supply and usage for many companies. This unexpected and sudden change placed many companies in a completely different situation than before.

Companies should stay on top of their double materiality and continually monitor and update this.

Double Materiality is only the beginning.

A double materiality assessment can provide a comprehensive overview of your company’s impact on the outer world, and vice versa. But when it comes to reporting under the CSRD and its corresponding ESRS, double materiality is only the beginning.

Because it is at the core of the report, it is crucial to get this correct. Working with experienced sustainability reporting partners such as First Climate can ease the reporting process and ensure that you have successfully fulfilled your CSRD reporting obligations.

Start your CSRD Reporting now with First Climate's Double materiality assessment

Get your double materiality assessment and take the first CSRD step with us.


Hannah Graf-Edinger Senior Corporate Climate Strategy Consultant at First Climate

About the Author

Hannah Graf-Edinger is a senior corporate climate strategy consultant specializing in carbon accounting and sustainability reporting. With a background in environmental and energy law, she excels at applying national and international legislation and analyzing complex issues in a structured manner. Before joining First Climate in 2023, she worked as a research associate on various environmental and climate law research projects.



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