Double materiality has emerged as a cornerstone concept in corporate sustainability reporting, mandated by the Corporate Sustainability Reporting Directive (CSRD) and detailed in the European Sustainability Reporting Standards (ESRS). For companies required to carry out sustainability reporting, understanding and conducting a double materiality assessment is essential – not just for regulatory compliance, but also for achieving strategic environmental, social, and governance (ESG) goals.
Our guide gives you everything you need to know about double materiality assessments, including a step-by-step guide to achieving compliance efficiently. You’ll also see how Reegy can help simplify this process so you can focus on creating impact – not paperwork!
What is a Double Materiality Assessment?
A double materiality assessment (DMA) is an integral part of regulatory sustainability reporting under CSRD that requires companies to evaluate and disclose their impact on the environment and society, as well as how external sustainability factors affect their business.
You can think of double materiality assessment as a dual-perspective approach to identifying material topics.
1. Financial Materiality (Outside-In Perspective)
Examine how sustainability-related risks and opportunities (e.g., climate change, regulations, market shifts) impact your company’s financial health and long-term value creation. This is also called the Outside-In perspective in CSRD.
2. Impact Materiality (Inside-Out Perspective)
Assess the effects your company’s activities have on society, the environment, and governance structures. Examples are carbon emissions, human rights, and diversity. This is also called the Inside-Out perspective in CSRD.
Under the CSRD, companies must report on both perspectives, ensuring a holistic understanding of their sustainability efforts. This approach isn’t just about ticking regulatory boxes – it’s about transparency and accountability that builds trust with stakeholders.
The requirements for a double materiality assessment are laid out in ESRS 1 and companies under CSRD must report for it in ESRS 2.
If you want to know more about CSRD, check out our 2024 guide to CSRD!
Why is Double Materiality Important?
Double Materiality is fundamental to sustainability reporting to comply with CSRD regulations, build stakeholder trust, and gain strategic and competitive advantages.
1. CSRD Compliance
Failing to comply with the CSRD and ESRS requirements could lead to penalties and missed reporting obligations. A robust double materiality analysis ensures you’re on the right track.
2. Building Stakeholder Trust
Transparent reporting shows your commitment to responsible business practices. Investors, employees, regulators – and most of all your customers – are more likely to engage with a company that prioritizes sustainability.
3. Strategic Insights
While reporting might feel cumbersome at times, a double materiality analysis identifies ESG risks and opportunities of your business and operations. This helps you make better strategic decisions in the long run.
4. Competitive Advantage
By carrying out double materiality early on, you can position yourself as a sustainability leader in your space!
How to Conduct a Double Materiality Analysis: A 10-Step Guide
We get it – double materiality sounds daunting. But when broken into manageable steps, it’s totally doable. Here’s how you can tackle it efficiently:
1. Prepare and Plan
As the saying goes, “Fail to plan, and you plan to fail.“
Every double materiality assessment begins with these 3 essential steps:
- Understand regulatory requirements (our CSRD guide can help!)
- Assemble a Cross-Functional Team
- Develop a project plan
Set up a project team that includes members from various departments and preferably external experts on sustainability. Once you have done so, your project plan outline objectives, timelines, and responsibilities, as well as set aside a sufficient budget for the project.
2. Analyse the Status Quo
Before you dive in, you need to evaluate your current business model, supply chain, and existing sustainability initiatives.
What data is missing and how can you obtain it? Remember that ESG takes into consideration all types of environmental, social and governance impacts.
💡 Pro Tip: This is where Reegy can help! Our platform analyzes your existing operations and flags missing data points automatically.
3. Identify Stakeholders
Identify all relevant internal and external stakeholders. They include:
- Internal: Employees, management.
- External: Investors, customers, NGOs, suppliers.
Try to include and engage as many stakeholders as possible, as early on as you can to understand their priorities. Our software includes an easy to use stakeholder engagement module!
4. Build your Longlist
Now it’s time to get your hands “dirty” and create a comprehensive inventory of all potentially material topics.
Think big! Your longlist should include all ESG topics relevant to your industry, operations, and stakeholders. You can always remove topics later on when you create your shortlist in step #6.
You can find inspiration in ESRS 1 – General Requirements Document or refer to standards like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB).
Example topics could be:
- Greenhouse gas emissions (Scope 1, 2, 3)
- Diversity, equity, and inclusion (DEI) practices
- Supply chain transparency
- Climate risk and adaptation
- Circular economy and resource efficiency
In our Reegy platform, we give you a comprehensive list of sustainability topics for your company and value chain!
5. Assess Impacts, Risks, and Opportunities (IROs)
Now it’s time to assess impacts, risks and opportunities (IROs) of your longlist. For each sustainability topic from step #4, evaluate:
Financial Materiality: How does it affect your company’s financial performance?
Impact Materiality: How does your company impact society or the environment?
Record the significance and likelihood of each IRO, as you’ll need them in the next step!
6. Turn your Longlist into a Shortlist
This step focuses on refining the longlist of potentially material topics into a focused shortlist. These topics should reflect the most critical issues for your company’s sustainability reporting and strategic decision-making.
Remember that quality beats quantity and in our experience, 15-25 topics are sufficient for the first iteration.
7. Conduct the Double Materiality Assessment
Now it’s time for the “big step”: Using the shortlist, it is time for the actual double materiality analysis. Prioritize material topics and ensure all relevant information for your reports is included.
Develop a Materiality Matrix
Plot impacts, risks and opportunities on a matrix to visualize their importance from both financial and impact perspectives. Prioritize topics that rank high in both dimensions!
💡 Quick Win: Reegy’s drag-and-drop materiality matrix builder helps you visualize topics in real-time, saving hours of manual work and ensuring your double materiality assessment is accurate and efficient.
8. Validate with Stakeholders
Bring stakeholders back into the loop to refine your results. Use visuals like your materiality matrix for clear communication and listen to any feedback you can get.
9. Compile and Document
With your double materiality assessment completed, it’s time to assign the results to their standards according to ESRS.
The ESRS is made up of two cross-cutting standards (ESRS 1 and ESRS 2) along with ten topical standards that address individual Environmental, Social, and Governance (ESG) topics. ESRS 1 lays out the reporting guidelines of the framework while ESRS 2 is mandatory for all organizations under CSRD.
Your additional reporting requirements depend on the outcomes of the double materiality assessment from the previous steps and the type of your business.
For nearly all companies, ESRS 1 (Climate Change) and ESRS S1 (Own Workforce) form the basis, whereas e.g. marine logistics companies will probably include ESRS E3 (Water and Marine Resources) in their reports.
On the other hand, industrial companies with large factories will put emphasis on ESRS E2 (Environmental Pollution).
In the rare case that ESRS E1 is deemed non-material for a company, it must be explicitly documented.
Reegy’s CSRD module can automate this process for you so you can spend more time on what matters most: Make an impact!
10. Report
The outcomes of the double materiality assessment must be clearly communicated to stakeholders via sustainability reporting and disclosure processes. The CSRD also requires verification of these documents by an accredited third party. The assessment process, as outlined in ESRS 2 IRO-1, and the corresponding results, as required by ESRS SMB-3 and ESRS 2 IRO-2, must be transparently disclosed.
How often do you need to conduct a Double Materiality Assessment?
Materiality is not static and as such, we recommend you constantly refine your double materiality assessment.
Review and update your assessment at least once a year (preferably when preparing your annual sustainability reports) to reflect changing regulations, market conditions, and stakeholder priorities. If you have omitted topics in previous steps, now might be the time to include them. However, never sacrifice quality for quantity!
💡 Simplify this: Once you have conducted a double materiality assessment in our platform, you can refine it easily at any time without having to redo all your previous work.
What comes after the Double Materiality Assessment?
While handing in a completed sustainability report is a huge achievement, it is only a means to an end! Now it is time to incorporate material ESG topics into your company’s overall strategic planning, set up sustainability goals and KPIs and monitor your progress.
We love to call this the “Impact Phase” of your sustainability efforts and it’s the most fun, in our opinion.
Whether you strive for Net Zero, Zero Waste, reduced water consumption or 100% circularity, use the Reegy platform to achieve your goals and do good! Talk to us and see how we can work together!
Challenges in Double Materiality Analysis
Conducting a double materiality analysis can be a complex and time-consuming process, particularly for companies new to sustainability reporting. Here are some of the most common challenges businesses face and tips on how to overcome them.
Data Overload
The Challenge: Collecting and managing vast amounts of data from multiple sources—operations, supply chains, stakeholders—can feel overwhelming, especially without a centralized system.
The Solution: Use tools like Reegy’s data management platform, which consolidates ESG data into one accessible location. Automated data collection and integration simplify the process, reducing the risk of errors.
Stakeholder Engagement
The Challenge: Balancing diverse and sometimes conflicting expectations from stakeholders such as investors, employees, customers, and NGOs.
The Solution: Create a structured stakeholder engagement plan. Reegy’s stakeholder survey module allows you to efficiently gather feedback and prioritize issues based on data-driven insights.
Keeping Up with Evolving Standards
The Challenge: Sustainability standards and regulations are constantly evolving, making it difficult to stay compliant.
The Solution: Reegy provides real-time updates and ensures your process remains aligned with the latest CSRD and ESRS requirements.
How Reegy Simplifies Double Materiality Assessment
Double materiality analysis doesn’t have to be overwhelming. Reegy’s platform is designed to tackle these challenges head-on, making the process efficient, accurate, and less stressful. Whether you’re navigating data overload, engaging stakeholders, or aligning with ESRS, we’re your partner in simplifying CSRD reporting!
Our customers say that using our platform cuts down the time spent on CSRD reporting by up to 70%! Want to see for yourself? Contact us for a demo today!
Conclusion
Double materiality is more than a regulatory requirement – it’s an opportunity to align your business with the future of sustainability. By following this guide, you’ll not only meet compliance requirements but also build a strategy that drives real-world impact.
Are you ready to streamline your double materiality analysis? Contact us today for a demo and see how our platform can revolutionize your ESG reporting journey.
Reegy is a complete software solution for ESG & Carbon Footprint Management. Our Reegy Eco Hub enables enterprises, financial institutions and governmental organizations to manage their climate action in one central location along the entire value chain. Track, measure, reduce, and offset your carbon emissions, disclose them to regulators, stakeholders, and customers and lead your company to Net Zero on autopilot!