Materiality Assessment: Guide for CSRD, VS and SMEs
Double materiality assessment explained: who still needs it after the Omnibus, steps under the revised ESRS, matrix, effort, costs and templates.
The Double Materiality Assessment (DMA) is a central instrument of the CSRD (Corporate Sustainability Reporting Directive) and the ESRS (European Sustainability Reporting Standards). It helps companies determine which sustainability topics are relevant for their business and therefore also for their reporting. Two perspectives are considered:
- Financial materiality: How do sustainability factors affect the company?
- Impact materiality: What impact does the company have on the environment and society?
Companies that fall under the CSRD reporting obligation must conduct a Double Materiality Assessment and disclose their results in their sustainability reporting. This ensures that both financial risks and social and environmental impacts are transparently assessed.
With the revised ESRS (Delegated Regulation (EU) 2026/1563, mandatory for financial years beginning on or after 1 January 2027), the materiality assessment is simplified: a top-down approach is permitted, the AR 16 topic list is only illustrative, and an information filter applies. For companies reporting voluntarily under the VS (formerly VSME), the Double Materiality Assessment is not mandatory.
Helpful tools for your Materiality Assessment
The best software solution for conducting the Double Materiality Assessment with AI support.
This Materiality Assessment template makes it easier for you to conduct your Double Materiality Assessment according to CSRD – already updated to the revised ESRS.
Practice-oriented 4-hour workshop on conducting the materiality analysis. Physical or digital.
1. What is the Double Materiality Assessment?
The Double Materiality Assessment (DMA) is a crucial concept in sustainability-related corporate reporting and plays a central role within the CSRD. It helps companies systematically identify and assess material sustainability topics. Both opportunity- and risk-based as well as impact-related aspects are considered, which is a crucial difference from previous reporting standards that often focused only on financial risks.
Significance of the DMA for companies
The consideration of double materiality as part of an analysis has the following advantages for companies:
- Meets regulatory requirements: The CSRD requires companies in scope to conduct a Materiality Assessment.
- Increases transparency & credibility: Clear disclosure of sustainability issues for stakeholders.
- Promotes sustainable business strategies: companies recognize risks and opportunities at an early stage.
- Improves investor valuation: ESG criteria are becoming increasingly important for capital markets.
Legal basis and obligations
With the CSRD, companies in scope in the EU are required to conduct a Double Materiality Assessment and disclose their sustainability information in accordance with the ESRS standards. The Omnibus Directive has been in force since 18 March 2026: from financial year 2027, only companies with more than 1,000 employees and more than €450 million net turnover are subject to reporting. Listed SMEs are no longer in scope. The exact requirements are set out in ESRS 1 “General Requirements” and ESRS 2 “General Disclosures”.
The revised ESRS were adopted on 3 July 2026 and published in the EU Official Journal on 21 September 2026 as Delegated Regulation (EU) 2026/1563. They apply mandatorily to financial years beginning on or after 1 January 2027; for financial year 2026, companies have a choice. For the materiality assessment this means: a top-down approach is permitted, the topic list in AR 16 is only illustrative, and an information filter has been introduced. In addition, mandatory data points are cut by over 60% and total data points by over 70%.
For companies in scope, this means: those who do not carefully assess sustainability risks and impacts risk violating legal requirements, reputational damage and financial penalties.
Who still has to carry out a materiality assessment in 2026?
Since the Omnibus, the obligation is much narrower. Yet far more companies are asked about it, because banks, large customers and ratings want to know their material topics.
| Company | Materiality assessment | Basis |
|---|---|---|
| More than 1,000 employees and more than €450m net turnover | Mandatory from financial year 2027 | CSRD and revised ESRS |
| Companies below these thresholds reporting voluntarily under the VS | Recommended, not mandatory | VS (Delegated Regulation (EU) 2026/1560) |
| Suppliers of CSRD companies with up to 1,000 employees | Not mandatory; from financial year 2027 customers may not request more than the VS | Value chain cap in the Omnibus |
| Companies receiving requests from banks, insurers or EcoVadis | Not mandatory, but often the fastest basis for solid answers | Contract or customer requirement |
For SMEs in particular, a lean assessment focused on their own topics pays off. How to do it in one to two days is explained in Materiality assessment for SMEs.
2. What does Double Materiality mean?
The Double Materiality Assessment is based on two central perspectives: financial materiality and impact materiality. Both dimensions are essential for sustainability reporting according to CSRD and ESRS and complement each other.
Financial materiality
Financial materiality (also known as the outside-in perspective) refers to sustainability aspects that affect the company itself financially. This involves risks and opportunities arising from environmental, social or governance (ESG) factors that can influence a company’s financial position, performance or access to capital.
Examples of financial materiality:
- Climate risks: Rising CO₂ prices, stricter environmental regulations or extreme weather events can lead to financial burdens.
- Regulatory changes: New sustainability requirements may necessitate investments or influence business practices.
- Reputational risks: Negative public perception due to ESG violations can result in a decline in sales or loss of capital.
Relevance: Companies must disclose how sustainability risks affect their financial situation – similar to traditional financial risks.
Impact materiality
Impact materiality (also known as the inside-out perspective) looks at the company’s impact on the environment, society and governance. This is about the positive or negative effects that business activities have on people, natural resources or social structures.
Examples of impact materiality:
- Environmental impact: Greenhouse gas emissions, water consumption or waste production of a company.
- Social impact: Working conditions, human rights in the supply chain or fair pay.
- Governance factors: corporate ethics, corruption risks or diversity in management.
Relevance: Companies are obliged to present their sustainability-related impacts transparently, even if they are not directly noticeable in financial terms.
Interplay of both perspectives
Double materiality ensures that companies consider both financial risks and social and environmental impacts. Sustainability topics can be material at the same time in both dimensions- or only in one of the two perspectives. As soon as one of the perspectives is classified as material, the company must report on this topic.
Example:
- Climate change is financially significant for many companies (e.g. rising CO₂ costs) and impact-significant (e.g. due to high CO₂ emissions from the company).
- Data protection & IT security can be financially significant (risks from cyber attacks), but have no significant social impact.
- Biodiversity protection can have a high impact materiality (effects on ecosystems), but only limited financial significance for a company.
For each sustainability dimension, companies must assess whether it is financially material, impact-based from both perspectives or not material at all.
3. How is the Double Materiality Assessment conducted?
Conducting a Double Materiality Assessment takes place in several systematic steps. Companies must assess both financial and impact materiality to identify relevant sustainability topics and include them in their reporting. IROs (Impact, Risk & Opportunity) play a central role: It requires the assessment of impacts, risks, and opportunities in connection with sustainability topics.
Understanding and classifying the corporate context
The first step is to analyze the company and its business model in order to understand which sustainability issues could potentially be relevant for the company. Various sources of information can be used for this:
- Internal analyses: What is the ESG relevance of the corporate strategy? What does the company’s value chain and business model look like? What products or services are sold and where is the organization located?
- Stakeholder analyses: What expectations do investors, customers, employees and NGOs have?
- Industry and market analyses: Which ESG risks are particularly relevant in the industry?
- Regulatory requirements: Which legal requirements apply (e.g. CSRD, ESRS, EU taxonomy)?
- Internal analyses: Which sustainability issues influence the corporate strategy and value chain?
Result: Together with the ESRS topic list (AR 16), these company- and industry-specific topics result in a longlist of potentially material topics that will be further analyzed in the next steps. Under the previous ESRS (Set 1), the AR 16 list was the mandatory starting point; under the revised ESRS it is only illustrative, and a top-down approach is also permitted.
Identification of IROs
The ESRS topic list comprises 10 topics (E1 to E5, S1 to S4, G1), subdivided into sub-topics. In the revised ESRS it sits in ESRS 1 Appendix A, without the former sub-sub-topics, and serves for orientation only. Impacts, opportunities and risks (IROs) must now be identified and formulated for these topics. Since the identification and formulation of IROs is very time-consuming, it is worthwhile to use pre-formulated IROs (e.g., from our IRO database) or AI-supported Materiality Assessment software solutions (e.g., Materiality Master).
Assessment of materiality using IROs
This phase examines which of the identified IROs and the associated topics are actually classified as material. Financial and impact materiality are assessed separately. Depending on the classification of the IRO, different factors must be assessed
- Scale: The scale indicates the extent to which an activity or incident affects the ESG topic (IRO). A “very high” scale can indicate a significant impact, opportunity or risk.
- Scope: The scope assesses how many people or which environmental area is affected. A “global/total” scope indicates impacts over large geographical areas or population groups.
- Irremediable character (negative impacts only): Assesses whether and how easily a negative impact can be remedied. “Irremediable” means the consequences are permanent. Older guidance calls this “reversibility”.
- Probability: The likelihood of potential impacts or opportunities & risks on ESG issues occurring. A high probability indicates a significant risk that the impact will actually occur.
What the revised ESRS change in the materiality assessment
Many guides and templates from 2024 and 2025 still reflect the old rules. Check these five points before reusing older material:
- AR 16 is illustrative only: the topic list is no longer a mandatory checklist to work through item by item.
- Top-down is permitted: you may start from your strategy and known core topics instead of building up every sub-topic from the bottom.
- Information filter: only IROs that actually lead to material disclosures need to be analysed in depth.
- Choice of reporting level: you decide whether to report at topic, sub-topic or IRO level.
- Aggregation instead of site-by-site reporting: results may be aggregated rather than presented separately for each site.
The revised ESRS only require an explanation of why a topic is not material for climate change (E1). For all other topics, stating “not material” is sufficient.
Internal or stakeholders can be involved in the evaluation of the IROs and data, facts and risk assessments (e.g. flood risk calculations) can be consulted. For an efficient CSRD implementation, it also helps to look at Materiality Assessment benchmark comparisons or to compare with CSRD-compliant reports (see CSRD report list) from companies in the same industry. For insurers, we have compiled a dedicated materiality assessment benchmark of 42 insurance groups.
Forms of presentation of the main topics
Once the relevant sustainability topics have been identified, they can be presented graphically. One of the most common forms of presentation is the materiality matrix, which depicts the topics on a two-dimensional axis. The horizontal axis shows the financial materiality, the vertical axis the impact materiality. This makes it clear which topics are particularly relevant both financially and in terms of their impact. How to get from IRO scores to the matrix step by step, with a worked example, is shown in Materiality matrix. A heat map or ranking tables are also useful for visually prioritizing the topics and focusing on the most important aspects.
Example of a materiality matrix (representation from the Materiality Master software)
Challenges in conducting the Materiality Assessment
Data availability and quality
The availability and quality of relevant ESG data is often limited. Companies should develop a targeted data strategy to identify data gaps. The use of specialized software solutions for data integration can help to ensure reliable data collection.
Involvement of relevant stakeholders in the Materiality Assessment
Involving different stakeholders can be a challenge, as it requires coordinated communication and is very time-consuming. By actively involving stakeholders (e.g. workshops and surveys**)**, companies can ensure that all relevant perspectives are taken into account.
Interface to risk management
ESG risks and opportunities must be assessed differently to traditional risks. The use of risk management tools and impact assessment models can enable well-founded identification and quantification.
Adaptation to new regulatory requirements
Regulatory requirements such as the CSRD and ESRS are subject to constant change. Companies should regularly review their processes and ensure that they always meet the latest requirements. Close cooperation with consultants can help with this.
Complexity of the topics
The multitude of ESG topics requires in-depth analyses and interdisciplinary collaboration. Prioritization techniques, such as the Materiality Model Canvas, help to identify the most relevant topics and optimize the focus.
4. What aids and tools are available?
Conducting a Double Materiality Assessment (DMA) can be efficiently supported through the use of modern CSRD aids and ESG software solutions. Various approaches are used – from AI-supported tools to specialized software solutions compared to the still popular Excel models. Both approaches are examined below.
AI support for the Materiality Assessment
The use of Artificial Intelligence (AI) can support the analysis process in several areas. Materiality Assessment AI prompts can be used independently of the tool. AI-supported systems are able to process large amounts of data, recognize patterns and connections, and thus provide valuable insights into the relevance of ESG topics. This can be particularly helpful when it comes to identifying trends or quickly assessing potential risks and opportunities. However, it is important to note that AI serves as a complementary tool and does not replace human expertise – the final interpretation of the results remains the responsibility of the professionals.
Software vs. Excel
When selecting suitable tools for conducting the DMA, companies often face the decision between specialized software solutions and conventional programs like Excel.
- Excel: Excel is widely used and is often sufficient for smaller projects, as it offers a flexible and easily accessible way to manually record and structure data and carry out initial analyses.
- Specialized software: In comparison, dedicated software solutions often offer advanced features such as automated data integration, interactive visualizations (e.g. materiality matrices) and regular updates in relation to regulatory requirements. These solutions can enable significant efficiency gains, particularly with large volumes of data and complex analysis processes.
The decision between these approaches should always be made on the basis of the individual company’s needs, the existing data volume and the complexity of the analysis. While Excel can score points as an entry-level solution, specialized software tools often offer more automation and deeper insights in the long term – provided they are used in line with the company’s requirements.
How much effort and cost does a materiality assessment involve?
The effort depends mainly on how much you do yourself. These are the four routes our clients use most often:
| Route | For whom | Price (plus VAT) |
|---|---|---|
| Fill in our Excel template yourself | Teams with some experience who want a structured start | €499 |
| Online course (3 hours) | Beginners who want to learn the method properly once | €999 |
| Workshop (4 hours) | Teams who want to kick off the assessment together with us | €1,499 |
| Full service | Companies without internal capacity, done in 4 weeks | from €6,999 |
In our experience, the biggest time sink is formulating the IROs. Our IRO database with over 850 pre-formulated impacts, risks and opportunities saves a lot of that work.
5. Materiality Assessment completed: What comes next?
After the Materiality Assessment has been completed and the material topics have been identified, the next step is to integrate these results into the CSRD report preparation. A structured approach follows to ensure that all relevant data points are captured and properly prepared.
Step 1: Determining the relevant data points
Based on the material topics, specific data points must now be identified. For the previous ESRS (Set 1), EFRAG published a comprehensive list with over 1,100 data points. The revised ESRS cut mandatory data points by over 60% and total data points by over 70%. Since manual data point mapping of material topics to data points is very time-consuming and error-prone, it is recommended to use a data point mapping tool (already updated to the revised ESRS) or possibly rely on CSRD consultants or CSRD experts.
Step 2: Gap analysis and data collection
The next step is a gap analysis to determine whether the required data is already available or still needs to be collected. Internal reporting and external sources should be checked here. If data is missing, processes must be set up to collect it.
Step 3: Preparation of the sustainability report
The data collection is followed by the preparation of the sustainability report. This must present the relevant ESG key figures in a clear and transparent manner so that all regulatory requirements, such as the CSRD and ESRS, are met. Companies not subject to mandatory CSRD reporting can decide to prepare a voluntary sustainability report in accordance with the VS (Voluntary Standard, formerly VSME) – a Double Materiality Assessment is not mandatory for this. Companies subject to the CSRD must publish the comprehensive CSRD report together with the financial report.
Step 4: Review and publication
Finally, the CSRD report must be audited by the statutory auditor (or, where applicable, an independent assurance services provider under national law). Assurance is permanently limited to limited assurance; the originally planned reasonable assurance has been dropped. Once this audit has been completed, the report is finalized and published in accordance with the CSRD deadlines.
6. Where is there further support for the Materiality Assessment?
Aids and guidelines for implementing the Materiality Assessment
There are many guidelines and tools that support companies in implementing the Double Materiality Assessment as well as CSRD implementation:
- EFRAG: The EFRAG Materiality Assessment guideline (IG 1) for implementing Double Materiality helps companies understand how to conduct a Materiality Assessment and which environmental, social, and governance (ESG) topics they must address in their sustainability report. It explains step by step how to do the analysis and answers frequently asked questions about it.
- DNK: The German Sustainability Code offers a free quick guide for conducting the Double Materiality Assessment according to ESRS.
- CSR Tools articles: In our blog you will find numerous articles about the Materiality Assessment, e.g. Four steps to creating a Materiality Assessment, Materiality assessment for SMEs and Materiality matrix
- CSR Tools offer: Excel template for conducting the Materiality Assessment & matrix
- Materiality Master: AI-supported software for conducting the Double Materiality Assessment
- CSRD Compass Newsletter: Every 2 weeks you will receive practical implementation tips.
Further reading and links
- EU Commission – Corporate Sustainability Reporting
- German Environment Agency – Environmental reporting & CSRD
- EU Commission – Delegated Regulation on the previous ESRS (Set 1)
Our self-service solutions combine pragmatic simplicity with in-depth expert knowledge and make sustainability reporting quick and effective to implement. 🚀 Discover the right CSR tools now!
7. Frequently asked questions (FAQ)
Does my company have to carry out a materiality assessment?
It is mandatory from financial year 2027 only for companies in CSRD scope with more than 1,000 employees and more than €450m net turnover. For everyone else it is voluntary. It is often still worthwhile, because banks, large customers and ratings such as EcoVadis ask about your material sustainability topics. More in Materiality assessment for SMEs.
How much does a materiality assessment cost?
It depends on how much you do yourself. With our Excel template you start at €499, the 4-hour workshop costs €1,499 and the full service by us is available from €6,999 (all plus VAT). On top comes your internal time for data, interviews and alignment.
What is the Double Materiality Assessment?
The Double Materiality Assessment is a process in which companies assess ESG topics both from the perspective of their financial relevance and with regard to their impacts on the environment and society. It forms the basis for transparent and integrated sustainability reporting.
Why is the Double Materiality Assessment important?
The analysis enables companies to identify key ESG risks and opportunities, comply with regulatory requirements such as the CSRD and ESRS and thus manage their sustainability strategy in a targeted manner.
Which legal requirements concern the Double Materiality Assessment?
In particular, the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) require companies in scope to conduct a Double Materiality Assessment and present it transparently in their reporting. From financial year 2027, these are companies with more than 1,000 employees and more than €450 million net turnover; from then on, the revised ESRS (Delegated Regulation (EU) 2026/1563) with a simplified materiality assessment apply mandatorily. Under the voluntary VS, the Double Materiality Assessment is not mandatory.
What does IRO mean in the context of the Double Materiality Assessment?
IRO stands for Impact, Risk & Opportunity. This approach ensures that companies consider not only the direct financial impact of ESG issues, but also their social and environmental impact as well as the associated risks and opportunities.
How is the Double Materiality Assessment conducted?
The process comprises several steps: First, relevant ESG topics are identified, followed by data point mapping and an assessment of these topics according to financial and impact materiality – often visualized in a materiality matrix. The IRO principle is incorporated into the analysis.
What role does data point mapping play in the analysis?
The data point mapping assigns relevant data sources to the identified ESG topics. This ensures structured data collection and integration, which is essential in order to meet the requirements of the ESRS and provide a sound basis for the analysis.
How can modern technologies like AI support the DMA?
AI-supported tools can analyse large amounts of data, identify patterns and trends and thus accelerate the process of prioritizing topics. The AI acts as a supporting tool, while the final assessment is still based on human expertise.
What are the advantages and disadvantages of specialized software compared to Excel?
Excel offers flexibility and is often sufficient for smaller projects. Specialized software solutions, on the other hand, offer advantages such as automated data integration, interactive visualizations (e.g. materiality matrix) and greater efficiency for complex analyses – which is particularly advantageous for large volumes of data and regulatory requirements.
How are stakeholders involved in the DMA process?
Companies involve stakeholders in the process through regular analyses, workshops and surveys. In this way, different perspectives from investors, employees, customers and NGOs are incorporated into the assessment of ESG issues and increase the acceptance of the results.
How is a materiality matrix created?
When creating a materiality matrix, identified ESG topics are presented on a two-dimensional graphic. One axis represents the financial relevance, the other the social and environmental impact. This allows topics to be prioritized and presented visually.
How often should the Double Materiality Assessment be updated?
The analysis should be reviewed and updated regularly – ideally annually or whenever there are significant changes in the business environment – to ensure that it always reflects current ESG risks, opportunities and regulatory requirements.
8. Blog posts on the Materiality Assessment
Related topics
- CSRDRequirements, deadlines and obligations of the EU directive.Learn more
- ESRSThe European reporting standards – structure and data points.Learn more
- VS (formerly VSME)The voluntary sustainability report for SMEs and mid-sized companies.Learn more
- Carbon AccountingUnderstanding the GHG Protocol and Scope 3.Learn more