How to Create a CSRD-compliant Materiality Assessment in 4 Steps
Discover in our guide what the 4 steps of a Materiality Assessment are and how you can implement them, with a practical example.
- The CSRD requires companies to conduct a double Materiality Assessment as the foundation of ESRS-compliant sustainability reporting.
- The process follows four steps: understand context, identify IROs, assess IROs, and prepare the report.
- Double materiality combines two perspectives: how sustainability topics affect the company (financial materiality) and how the company affects the world (impact materiality).
- Tools and templates, including Excel templates and dedicated software like Materiality Master, can make the process more efficient and audit-ready.
- The simplified ESRS published for consultation in May 2026 would cut mandatory data points by over 60%, making the materiality assessment more manageable.
The Corporate Sustainability Reporting Directive (CSRD) represents a turning point for the transparency of corporate sustainability reports. Companies are encouraged to disclose not only their financial but also their environmental and social impacts. A key component of this is the double Materiality Assessment.
What is a Double Materiality Assessment?
A double Materiality Assessment (also called materiality analysis) is a process in which companies explicitly identify and assess the topics that are material to their business operations and stakeholders in terms of Environment, Social, and Governance (ESG). This helps companies to set the right priorities and use resources efficiently.
The double Materiality Assessment is a central component of CSRD sustainability reports that are compliant with the ESRS. Such a Materiality Assessment is also required in the Global Reporting Initiative (GRI) guidelines. It is a good basis for meeting the requirements of the ESRS as well. Companies should not only aim to meet legal requirements. It provides valuable information for investors, customers, and other stakeholders and creates insights that can serve as decision-making aids.
Is there a Difference between a Materiality Assessment and Double Materiality?
The difference between a traditional Materiality Assessment and the concept of double materiality lies in the perspective and scope of assessing sustainability topics.
Traditional Materiality Assessment
- Focuses on identifying and assessing topics that are material to the company and its stakeholders.
- Examines how issues influence business activities and their impact on long-term performance and sustainability.
- Assessment is usually from the perspective of the company and its immediate interests: risk management, reputation, financial impact, and compliance.
Double Materiality Assessment
The concept of double materiality expands this approach by considering not only the importance of an issue for the company, but also the company's impact on the environment and society. This involves two dimensions:
While the traditional Materiality Assessment focuses on the relevance of sustainability topics for the company, double materiality also includes the external impacts of the company in these areas. Double materiality therefore becomes a relevant strategic tool for companies.
What does IRO mean in the context of CSRD?
In the context of the CSRD, "IRO" stands for "Impacts, Risks, and Opportunities". Determining material information on a company's sustainability impacts, risks, and opportunities is a central component of the Materiality Assessment.
What are the 4 Steps of a Double Materiality Assessment?
The ESRS do not prescribe a rigid procedure for preparing the Materiality Assessment, as there is no single perfect approach for all company types, industries, organizational structures, locations, and value chains. However, EFRAG (European Financial Reporting Advisory Group) recommends the following steps in a guide for a CSRD-compliant double Materiality Assessment:
Step 1: Understanding the Context
The first step is to classify the company context.
a) Create an overview of business activities and relationships:
- Analysis of the business plan, strategy, financial reports, and other relevant information.
- Overview of products/services and geographical locations.
- Mapping of business relationships and the upstream and downstream value chain.
b) Consider further contextual information:
- Analysis of the legal and regulatory framework.
- Reviewing media reports, industry benchmarks, sustainability trends, and scientific articles to avoid neglecting silent stakeholders. Unlike other stakeholders, nature as a silent stakeholder cannot voice its concerns. Data from scientific sources can give nature a voice.
c) Develop an understanding of affected stakeholders:
- Identification and analysis of existing stakeholders and their views and interests.
- Mapping the affected stakeholders to the business activities. Separate groups of affected stakeholders can be identified for each activity, product, or service, which must be prioritized for a specific sustainability issue.
Stakeholder engagement serves to identify and assess the material IROs. It can help with the assessment of relevance, probability, and time horizon, and also ensure the completeness of the material topics identified.
Step 2: Identification of Actual and Potential IROs
In the second step, the company identifies material impacts, risks, and opportunities (IROs) regarding environmental, social, and governance topics of its own business activities as well as in the upstream and downstream value chain. This results in an extensive list of IROs, which is then further analyzed and evaluated in subsequent steps. The following points should be noted:
- The list of sustainability topics in ESRS 1 (paragraph AR16) should serve as an aid during the process and ensure completeness.
- There are aspects not included in ESRS 1 that may nevertheless be material for the company.
- Until sector-specific standards are issued, such aspects must be determined and evaluated on a company-specific basis.
- The list of ESRS data points published by EFRAG is not a checklist for identifying material sustainability topics or IROs, but provides a useful and more detailed overview of the ESRS standards. EFRAG also offers further CSRD guidance.
- For each IRO identified, it must be stated whether it relates to the company's own operations, the upstream or downstream value chain, and the corresponding time horizon (short, medium, and long term).
- Companies can group the identified IROs into categories and should adapt the designations and terminology to those of ESRS 1.
Step 3: Evaluation and Definition of the Main IROs
In step 3, the extensive long list of IROs is analyzed in more detail. Criteria are applied to determine the material actual and potential impacts as well as the material risks and opportunities. This forms the basis for determining the material information that must be disclosed. Qualitative and quantitative thresholds for determining whether an IRO is material or not can be found in ESRS 1 and 2.
Impact Materiality Assessment
To determine the materiality of the impacts, the impacts from step 2 are assessed according to the extent or severity of the (potential) impacts. The following information should be recorded depending on the type of impact:
| Impact type | Assessment criteria |
|---|---|
| Actual negative impact | Magnitude, extent, and irreversible nature (irretrievability) of the impact |
| Potential negative impact | Plus: probability and corresponding time horizon of occurrence |
| Actual positive impact | Scale and scope of the impact |
| Potential positive impact | Plus: probability of occurrence |
The severity of an actual or potential negative impact is assessed from the perspective of the people affected or the environment. The following characteristics are decisive:
- Extent (scale): How severely the impact restricts basic life needs or freedoms, such as education or livelihood.
- Scope: How many people are affected or how great the environmental damage is.
- Irremediability: The extent to which the impact can be remedied through compensation or restoration.
Each of the three characteristics can classify an impact as serious on its own. However, they are often interdependent and influence each other in their assessment.
If there is scientific consensus on the severity of certain global or local environmental impacts, it can be assumed that the impact is indeed significant without conducting an own analysis. Companies should decide on the severity of the impact at their own discretion and on the basis of available scientific information.
The involvement of stakeholders (including employees) can be valuable in determining the severity and likelihood of certain impacts. These interest groups can also help to evaluate, validate, and ensure the completeness of the Materiality Assessment results.
Financial Materiality Assessment
The list of IROs from step 2 can also serve as a basis for the assessment of financial materiality. This involves evaluating whether certain risks and opportunities are considered material. These result from impacts, dependencies, or factors such as climate risks or regulatory changes. Quantitative and qualitative thresholds based on financial impacts, such as performance, the company's financial position, cash flow, and access to capital, determine whether an IRO should be classified as material.
The probability and potential financial extent of these material risks and opportunities are assessed in the short, medium, and long term. Companies can also compare these with the sustainability risks from existing risk management processes. Relevant business areas and investors or other stakeholders (e.g. banks) can be included in the assessment of the IROs and ensure completeness.
If an item has been determined to be financially material, the entity determines what information to report based on materiality. ESRS 2 IRO-2 requires an explanation of the determination of the information to be disclosed in relation to the material IROs, including the use of thresholds and/or the implementation of the criteria.
In principle, information is considered material if the omission, misstatement, or obscuring of this information influences the decisions of readers of the financial report (e.g. investors).
The results of the previous steps (Impact and Financial Materiality Assessment) are then summarized to create a list of material impacts, risks, and opportunities (IROs), which serves as the basis for the preparation of the sustainability report. Once the individual IROs have been assessed, they can be summarized for reporting purposes. The results of the double materiality analysis should be reviewed and validated with management.
Step 4: Create the Report
After completing the double materiality analysis, the company must disclose the following in the sustainability report:
- The procedure for identifying and assessing its material IROs (ESRS 2 IRO-1).
- The interaction of its material IROs with its strategy and business model (ESRS 2 SBM3).
- The criteria and thresholds for determining material information for disclosure (ESRS 2 IRO-2).
- Whether and how it has interacted with stakeholders and incorporated their feedback into the process of identifying and evaluating significant IROs (ESRS 2 IRO-1).
It is popular to present the key IROs in a materiality matrix. In such a matrix, the severity (extent, scope, and irreversibility) can be shown on one axis and the probability on the other.
To support the conduct of an auditable Materiality Assessment, there are numerous CSR software tools. A CSRD study by PwC reveals that every second company plans to use such a reporting software solution to fulfil the reporting obligation.
Our Excel template guides you step by step through the double materiality assessment and automatically generates your materiality matrix.
What Tools are Available for the Materiality Assessment?
Numerous companies are asking themselves how they can implement the analysis best and most efficiently. Should you rely on a Materiality Assessment Excel template or specialized software, such as the Materiality Master? We at CSR Tools have created an Excel template for the identification of material IROs and the automatic generation of a materiality matrix and offer this for download. This provides you with a cost-effective introduction to the topic. The use of tools and ESG software is recommended for conducting the double materiality analysis. The ability to track changes and stakeholder feedback in an auditable way is a great added value of these tools.
Which Software Solutions are Particularly Suitable?
In addition to our Excel template, the following CSRD tools offer a solid platform for conducting the Materiality Assessment, including stakeholder involvement:
- Materiality Master: Specifically developed for the double Materiality Assessment. Offers structured recording and assessment of IROs and enables visualization in a dynamic materiality matrix.
- CONSUST: An all-in-one ESG software that, in addition to identifying key areas of action, also enables you to track effective targets and measures for your ESG initiatives.
You can find more providers in our CSR tool overview.
Are you struggling to choose the right ESG software solution? Our CSRD tool selection guide can help you, and our software evaluation model will guide you step by step through a structured process to find the ideal tool for your needs.
Examples of Materiality Assessment
For companies conducting a materiality analysis for the first time, it can be helpful to look at examples from other companies. The Materiality Assessment Benchmark Studies by DRSC and the University of Cologne offer a very good overview.
Hugo Boss has been conducting a Materiality Assessment since 2015 and updates it annually, observing both the GRI guidelines and the CSR Directive Implementation Act (CSR-RUG). Hugo Boss transparently presents its approach and results as a list of material topics.
Vonovia redefined its material topics in 2020 in a comprehensive, auditable double Materiality Assessment. They analyzed how social and ecological change processes impact their business (outside-in perspective) and what impacts Vonovia has on the environment and society (inside-out perspective). They make their approach and results available in a materiality matrix.
Mercedes-Benz conducted an extensive Materiality Assessment in 2021, completed in 2022, applying the principle of double materiality. They transparently present their approach and results in a materiality matrix.
On 6 May 2026, the EU Commission put a draft of simplified ("revised") ESRS out for consultation. Key changes include mandatory data points cut by over 60%, total data points cut by over 70%, and a simplified materiality assessment process. This would significantly reduce the reporting burden for companies in scope.
Frequently Asked Questions about the Materiality Assessment
How often must a Materiality Assessment be conducted?
According to the CSRD and the ESRS, companies are obliged to carry out an annual materiality analysis. The assessment of materiality is a dynamic process and should be continuously updated to reflect changes, including those in the value chain.
However, if a company concludes, based on appropriate evidence, that the results of the materiality analysis from the previous reporting period are still accurate, it may use these conclusions for the preparation of the new sustainability report. This applies in particular if there have been no significant changes in the organizational and operational structure of the company and there are no significant changes in external factors that could generate new IROs or influence the relevance of certain disclosures.
What do the time horizons (short, medium, and long term) mean in concrete terms?
The ESRS defines the time horizons as follows:
- Short-term: The period that the company has defined as the reporting period in its report.
- Medium-term: From the end of the short-term reporting period up to five years.
- Long-term: More than five years.
My company is active in various sectors. How do I conduct the materiality analysis?
The parent company conducts the Materiality Assessment for the entire group of companies, regardless of the legal structure of the group and the aggregation used for the consolidated sustainability report.
It can use different approaches. A top-down approach carries out the valuation at group level with the inclusion of subsidiaries for specific matters. A bottom-up approach carries out the valuation at subsidiary level and consolidates the results. Trade-offs can occur at group level, so consistent methods and thresholds for the entire group are essential.
Who is actually required to report under the CSRD after the 2026 Omnibus changes?
Since 18 March 2026, the new CSRD thresholds require companies to have more than 1,000 employees AND more than €450 million net turnover to fall under the reporting obligation. Both criteria must be met cumulatively. This significantly reduces the number of companies in scope compared to the original rules. Companies that no longer meet these thresholds may be exempt from reporting for 2025 and 2026, even if they already reported in 2024.
Materiality Assessment done? Find out what comes next in our blog article "Guide to CSRD Reporting".
