What Is a Double Materiality Assessment?

Two perspectives instead of one

Traditionally, companies have approached materiality assessment from a single angle: what do our stakeholders care about? The double model, which is a central requirement under the Corporate Sustainability Reporting Directive (CSRD) and the reporting standard ESRS, requires companies to consider two dimensions simultaneously — impacts, risks and opportunities viewed from both the inside out and the outside in.

Impact materiality — inside out. How does the company's operations affect the world around it? This covers consequences for the environment, climate and people, both directly and through the supply chain. Examples: CO₂ emissions, water use, labour conditions among subcontractors.

Financial materiality — outside in. What future effects might sustainability issues have on the company's business? This covers risks and opportunities with financial consequences — for example, rising commodity prices linked to climate change squeezing margins, or growing demand for sustainable products opening new markets.

A sustainability matter is considered material if it meets the criteria for either dimension — or both. It's an "or", not an "and".

Why is it called double?

The name refers to the fact that the assessment looks in two directions at once. A company is not only an actor that affects the world — it is also an actor affected by it. Assessing only one of the dimensions gives an incomplete picture. Together, the two perspectives create a more honest and strategically useful view of where sustainability issues have the greatest impact.

What is a double materiality assessment used for?

The results of the materiality assessment directly determine what a company must report. The sustainability matters assessed as material — regardless of which perspective they fall under — are those that must be covered in the sustainability report under ESRS. A double materiality assessment is therefore not just an administrative step, but determines the entire scope and content of the report.

The double materiality assessment also gives companies a strategic tool. It surfaces blind spots and helps management ensure that resources are directed toward the areas that matter most to the business — both today and looking ahead.

How the process works

A double materiality assessment typically follows several steps:

1. Map the value chain — understand where the company's operations can affect and be affected, from raw material to end customer.
2. Identify stakeholders — who is affected by the business, and who uses the sustainability information?
3. Develop a long list of sustainability matters — the starting point is the areas covered by ESRS: climate, biodiversity, water, social issues, governance and more.
4. Assess impact materiality — for negative impacts, severity is evaluated across three factors: scale (how serious the impact is), scope (how widespread it is) and irremediable character (how difficult it is to reverse). For potential negative impacts, likelihood is also factored in. For positive impacts, only scale and scope apply (with likelihood added for potential positive impacts).
5. Assess financial materiality — what actual and potential financial effects might relevant risks and opportunities have on the company's financial position, performance, cash flows, access to finance and cost of capital, over the short, medium and long term?
6. Determine what is material — set thresholds and rank the matters based on results from both dimensions. The outcome is documented and can be visualised in various ways, for example in a materiality overview.

What applies to SMEs?

CSRD and the double materiality assessment requirement apply primarily to larger companies. Smaller businesses are not directly in scope — but are still affected, since large companies must ensure that their suppliers and partners also contribute sustainability data. There is also the voluntary VSME standard, developed specifically for small and medium-sized enterprises that want to stay ahead of the curve or meet customer demands for transparency.

Not sure where you stand?

GoClimate helps SMEs get started with sustainability reporting — without it having to be complicated. Try GoClimate's tool here.