Double materiality assessment under the revised ESRS: a step-by-step guide

A double materiality assessment decides what a company reports under the EU's Corporate Sustainability Reporting Directive (CSRD). A sustainability matter is material — and must be reported — if it is material from either of two perspectives, or both:

• Impact materiality (inside-out): the company's actual or potential impacts on people and the environment.
• Financial materiality (outside-in): sustainability matters that affect, or could reasonably be expected to affect, the company's cash flows, performance, position, cost of capital or access to finance.

What changed with the revised ESRS

The revised European Sustainability Reporting Standards were published in the EU's Official Journal on 21 September 2026 as Delegated Regulation (EU) 2026/1563. They enter into force on 10 November 2026 and apply to financial years beginning on or after 1 January 2027; for FY 2026, companies may use the original ESRS, the original ESRS with the new reliefs, or the revised ESRS in full.^{1 2}

Among the reliefs is a top-down approach to materiality, which lets a company start from its strategy, business model and known issues rather than screening every possible sustainability matter bottom-up.¹ The assessment still has to be documented and defensible.

Step by step

1. Understand the context

Map the business model, operations, products and value chain — upstream suppliers and downstream customers — and the stakeholders affected. For an Indian group, include Indian manufacturing sites and suppliers, not only the EU entity's own operations.

2. Identify impacts, risks and opportunities

List the impacts (on people and the environment), risks and opportunities (for the company) related to the sustainability topics in the ESRS: climate, pollution, water, biodiversity, resources and circular economy, own workforce, workers in the value chain, affected communities, consumers, and business conduct. Use existing sources: risk registers, BRSR materiality (Section A asks for material issues already), audits, grievances, customer requirements.

3. Assess impact materiality

Rate each impact by severity — its scale, scope and how irremediable it is — and, for potential impacts, its likelihood. For human rights impacts, severity takes precedence over likelihood.

4. Assess financial materiality

Rate each risk and opportunity by the likelihood and the potential magnitude of its financial effect over the short, medium and long term.

5. Set thresholds and decide

Set and document the thresholds for each perspective, apply them, and list the material matters. A matter material from either perspective is reported.

6. Validate and document

Have the results reviewed by management and the board's committee, and engage affected stakeholders or their representatives. Keep the evidence: sources, scores, rationale and decisions. The assurance provider will review the process.

7. Report

Disclose the process and its results, and report the material matters under the relevant ESRS.

How double materiality compares with BRSR and ISSB

See GRI, ISSB and ESRS compared and CSRD for Indian companies.

Frequently asked questions

What is double materiality in simple terms?

Reporting both how the company affects people and the planet, and how sustainability issues affect the company.

Is double materiality required for BRSR?

No. The BRSR asks for material issues and covers impacts through its nine principles, but it does not prescribe the ESRS double materiality process.

How often should the assessment be updated?

It should be reviewed every reporting period and updated when the business, its value chain or its context change significantly.

How ESGTrack helps

ESGTrack holds the double materiality assessment and the register of impacts, risks and opportunities with their scores and evidence, and the ESRS disclosures on the standards adopted in 2023 — which companies may still use for FY 2026 — with the revised ESRS shown as a regulatory update. The same approved figures feed the BRSR. See CSRD and ESRS, the framework mapping tool, or book a demo.