ESRS - Double Materiality Assessment
The ESRS significantly increases the number of disclosures companies have to provide on “material” sustainability matters (in addition to some base level disclosures). Specifically, companies required to report under the ESRS have to undertake a ‘double materiality assessment’ to identify the sustainability matters that are most material to the organisation and its stakeholders.
The double materiality assessment not only determines the scope of the organisation’s sustainability reporting but also enables the efficient allocation of resources needed for ESRS compliance. Additionally, it provides indispensable insights for shaping company strategy. This page outlines a seven-step process for conducting a double materiality assessment, highlighting some of the challenges in undertaking a double materiality assessment and introducing some of its strategic implications.
Making substantiated decisions on materiality
Under the double materiality concept, a sustainability matter can be material both from an impact point of view and/or from a risk and opportunity perspective. Although the ESRS provides some guidelines on this, it is ultimately up to the organisation to determine whether a subject is material or not, and to substantiate its decisions.
Assessing which topics are the most relevant (or material) for an organisation, and therefore must be included in its sustainability reporting, is an essential early step towards ESRS compliance. The outcomes of such an assessment determine, in ESRS-specific terms, which reporting standards, disclosures and data points should be included in an organisation's sustainability reporting, and which ones can justifiably be omitted.
Focus on what matters most
Broadly speaking, the double materiality concept ensures that sustainability reporting focuses on the topics that are most relevant for the organisation and its stakeholders. Material topics also underpin the (sustainable) strategy. A report and strategy based on material topics provide more transparency, support better decision-making and ensure that time and resources are directed towards the topics that matter most to the organisation, its stakeholders and society as a whole.
This seven-step process will guide organisations through the double materiality assessment. For each step, we explain the approach and provide insights from a practical perspective.
Practical tips & take-aways
- A double materiality assessment is the essential first step towards ESRS compliance, enabling organisations to direct their subsequent efforts on the sustainability matters that are most relevant to them and their stakeholders.
- Ask internal topic experts to help define and assess impacts, risks and opportunities. You will likely need input from Sustainability, Strategy, Finance, Risk, HR, and Legal.
Translate ESRS criteria (for example on how to assess scale, scope, likelihood and remediability) into tailored assessment guidance to ensure experts assess impacts, risks and opportunities consistently.
- Test your material topics with stakeholders and leave room for challenges and discussions around strategic considerations in your dialogue with stakeholders.
Go granular if you want to gain new strategic insights. Your assessment should also enable you to identify disclosure requirements and data points relevant to you.
Ensure that outcomes from the double materiality assessment are shared across the organisation and embedded in strategic decision-making.
- Properly document all assumptions and steps in the process, as this will be essential for obtaining assurance.
