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- Double materiality is mandatory according to CSRD/ESRS: it looks at how sustainability issues affect the company's financial position (financial materiality) and what impact the company has on the environment and society (impact materiality).
- An issue is considered material if it is relevant from one of the two perspectives - often both are affected (e.g. climate change, human rights).
- The analysis includes: Stakeholder identification, data collection, assessment and visualization - usually as a materiality matrix.
- Frequent stumbling blocks: Lack of stakeholder involvement, data problems, lack of methodological transparency, inadequate prioritization.
- Update regularly! The results influence the reporting strategy, goals and measures in sustainability management.
- External advice and digital tools help to avoid mistakes and speed up processes.
What is the double materiality analysis?
The double materiality analysis is a key tool in modern sustainability reporting. It helps companies to systematically identify and prioritize relevant sustainability issues. The focus here is on two perspectives:
- Financial materiality: How do sustainability issues (e.g. climate risks, social trends, new regulations) affect the economic success and financial position of the company? More on climate risks: Climate risk analysis for companies
- Impact materiality: What impact does the company itself have on the environment, society and stakeholders (e.g. CO₂ emissions, biodiversity, working conditions)?
Significance in the context of sustainability, ESG and CSRD
With the EU's Corporate Sustainability Reporting Directive (CSRD), the double materiality analysis has become mandatory for many companies. It forms the basis for reporting according to ESG criteria (Environmental, Social, Governance) and ensures greater transparency, comparability and credibility of sustainability data. The European Sustainability Reporting Standards (ESRS) explicitly prescribe the application of this approach. Read more about the EU guidelines for the CSRD report.
Relevance for companies
The double materiality analysis is essential for companies in order to identify risks at an early stage, exploit opportunities for sustainable innovation and comply with regulatory requirements. It facilitates the prioritization of measures and credible communication with investors, customers and other stakeholders. See also ESG Strategy for Startups for a practical introduction.
Materiality quiz: Your industry
Select your industry to see the typical material topics for the materiality analysis - including opportunities and materiality level.
Basics of the materiality analysis
Definition of materiality
Materiality describes the relevance of certain sustainability issues and information for stakeholders and the company. All aspects that have a significant influence on decisions, risks, opportunities and the long-term performance of the company are material. Further insights in the omnibus update on sustainability reporting.
Difference between single and dual materiality
Single material ity only looks at how sustainability issues affect the company's financial performance and risk profile.
Double materiality expands this approach to include the question of what influence the company itself has on the environment and society(impact perspective). Both perspectives must be taken into account in accordance with current regulation. See TNFD - Dealing with nature-related risks for more background.
Legal background (CSRD, GRI, ESRS)
The double materiality analysis has become mandatory in particular due to regulatory requirements such as the Corporate Sustainability Reporting Directive (CSRD) and the associated European Sustainability Reporting Standards (ESRS). The Global Reporting Initiative (GRI) has also been calling for this approach for many years and provides corresponding guidelines. In-depth: VSM & ESRS: The later changeover.
The materiality analysis is the linchpin of sustainability reporting. It determines which topics are really relevant for a company - both financially and in terms of the environment and society. A pragmatic approach for SMEs: VSME area: 5 steps to reporting
| Characteristic | CSRD | VSME |
|---|---|---|
| Mandatory/ Scope of application |
Mandatory throughout the EU for large companies & listed SMEs | 🟦 Voluntary for small & medium-sized enterprises (SMEs) |
| Reporting requirements | Very comprehensive, according to ESRS standards, double materiality as core | Significantly reduced, focus on core topics (depending on SME sector) |
| Materiality analysis | Double materiality (financial & impact) mandatory, comprehensive analysis, stakeholder involvement | Simplified analysis, focus on sector-specific topics, pragmatic approach |
| Methodology | ESRS framework, scope for design, in-depth data analysis & dialog | Flexible, often checklists & industry-specific guidelines, focus on key stakeholders |
| Audit | ✔️ External audit mandatory | ❌ No audit obligation |
| Objective |
|
|
CSRD: Companies must conduct a comprehensive double materiality analysis covering both financial risks & opportunities and environmental & social impacts - including detailed documentation.
VSME: SMEs can carry out a simplified analysis focusing on the most important topics and pragmatic solutions to improve their ESG profile in a targeted manner.
The double materiality analysis in detail
Financial materiality (outside-in perspective)
What does financial materiality mean?
Financial material ity (outside-in) looks at how external sustainability issues - such as climate change, regulatory changes or social trends - can influence a company's financial situation, risk profile and future viability. The focus is on risks and opportunities that have a medium to long-term impact on sales, costs, investments and access to capital. Climate risk and financial planning
Examples and use cases
- Regulatory risks (e.g. CO₂ prices, new ESG regulations) - see also CO2 market guidelines
- Market opportunities through sustainable products and services
- Reputational risks due to negative environmental or social impacts - more on this under Avoiding greenwashing
- Supply chain disruptions due to extreme weather or geopolitical changes
Impact materiality (inside-out perspective)
What does impact materiality mean?
The impact materiality (Inside-Out) describes the extent to which a company's business activities influence the environment, society and governance - both positively and negatively. The actual and potential impacts on people, ecosystems and stakeholders are assessed. See LCA: Assessing environmental impacts and decarbonization of Scope 3 emissions.
Examples and use cases
- CO₂ emissions and climate impact along the value chain
- Working conditions and human rights in the supply chain
- Impact on local communities and biodiversity
- Water consumption, waste production or resource use
- Business ethics, diversity and anti-corruption measures
Interplay of perspectives
The dual materiality analysis ensures that companies systematically assess both financial risks and opportunities (outside-in) and social and environmental impacts (inside-out). An issue is already considered material and subject to reporting requirements if it is classified as relevant from one of the two perspectives. Many sustainability issues - such as climate change, biodiversity or human rights - are often material in both dimensions.
Steps of the dual materiality analysis
1. preparation and stakeholder identification
In the first phase, the company's relevant stakeholders are systematically identified and prioritized. These include, for example, employees, customers, suppliers, investors, regulatory authorities and NGOs. The aim is to record the expectations, requirements and potential influence of these groups.
2. data collection and analysis
This is followed by the systematic collection and analysis of relevant data. This includes internal key figures, market and environmental analyses, ESG databases, legal requirements as well as qualitative surveys and workshops with stakeholders. The data forms the basis for the assessment of the various sustainability topics.
3. assessment of materiality
The identified topics are now assessed according to their relevance for financial performance (financial materiality) and their impact on the environment and society (impact materiality). The assessment is often carried out using defined criteria, scoring models or in interdisciplinary workshops. The results are typically visualized in a materiality matrix.
4 Visualization and reporting
Finally, the results are presented transparently in a materiality matrix and in the sustainability report. It is clearly communicated why certain topics were classified as material and what measures the company derives from them. Documentation of the methodology and stakeholder involvement is essential for traceability and verification by third parties.
Challenges and best practices
Typical stumbling blocks in practice
- Insufficient stakeholder involvement: Missing or incomplete identification and involvement of relevant stakeholders can lead to blind spots and acceptance problems.
- Data availability and quality: Difficulties in obtaining complete and reliable ESG data, especially for Scope 3 emissions and impact data along the value chain. More under Scope 3 in real time
- Lack of prioritization: Unclear or inconsistent weighting of the identified topics in terms of financial and impact materiality makes it difficult to derive clear measures.
- Lack of methodological transparency: Unclear documentation of the evaluation methodology and decision-making processes makes traceability and external auditing difficult.
Recommendations for successful implementation
- Early and systematic stakeholder analysis: Targeted identification and active involvement of all relevant interest groups - also internationally and along the supply chain.
- Clear methodology: Establish transparent and comprehensible criteria for the assessment of financial and impact materiality, ideally with interdisciplinary teams.
- Regular updates: Update materiality analyses at least once a year or in the event of significant changes (e.g. new regulatory requirements, market changes).
- Documentation and communication: The methodology, results and measures derived from them should be documented in a comprehensible manner and communicated openly in the sustainability report. Basics of the sustainability report
- High effort: Many companies underestimate the initial resource requirements (data, processes, stakeholder involvement).
- Data gaps: There are often still large gaps in Scope 3 emissions and impact data in particular.
- Stakeholder engagement: Companies that involve stakeholders early and systematically achieve better results and acceptance.
- Iterative process: The initial materiality analysis is usually a learning process - regular adjustments and improvements are the rule.
- Need for advice: External support is often used, particularly with regard to methodology and regulatory issues.
Tools and methods
Digital tools and standardized methods facilitate data collection, evaluation and visualization of the results. Examples include:
- ESG data management and reporting software: e.g. SAP Sustainability Control Tower, Plan A, Envoria
- Survey tools and stakeholder platforms: e.g. Qualtrics, Typeform, SurveyMonkey
- Visualization tools for materiality matrices: e.g. Miro, Power BI, Tableau
The role of consulting in the dual materiality analysis
Why external consulting makes sense
The dual materiality analysis is complex and requires comprehensive methodological knowledge and regulatory experience. External consulting helps companies to avoid typical mistakes, adopt independent perspectives and ensure methodological standards. External experts are often indispensable, especially for companies carrying out a double materiality analysis for the first time. Find out more about external support at Implementing ESG criteria and assessment with LCAs & Project Frame.
Consulting services at a glance
- Planning and methodological support: Support in the development of a structured approach including stakeholder identification.
- Data collection and analysis: Implementation of qualitative and quantitative surveys as well as evaluation and validation of the ESG data collected.
- Moderation and workshop support: Conducting workshops on stakeholder involvement and materiality assessment.
- Reporting and visualization: Support in the preparation of clear, regulatory-compliant reporting.
Practical examples and references
Practical examples from various industries illustrate the role and added value of external consulting. Typical cases include medium-sized companies that are confronted with CSRD for the first time or large companies that want to comprehensively update their existing materiality analysis.
Sustainability consultant for companies & startups
With over 10 years of experience in ESG and tech strategies, he supports companies in their entry into double materiality.
About the person
FAQ - Double materiality analysis
What is the double materiality analysis?
The double materiality analysis is a key instrument of modern sustainability reporting. It examines sustainability issues from two perspectives:
1. financial materiality: how do sustainability issues influence the economic success and financial position of the company?
2. impact materiality: What impact does the company have on the environment, society and stakeholders?
Why is the dual materiality analysis important for companies?
It is mandatory for many companies as a result of the EU CSRD Directive and the European Sustainability Reporting Standards (ESRS). The analysis helps to identify risks and opportunities at an early stage, meet regulatory requirements and ensure credible communication with investors, customers and other stakeholders.
What is the difference between single and double materiality?
Single materiality only looks at how sustainability issues affect the company's financial performance.
Double materiality expands this to include the question of what influence the company itself has on the environment and society (impact perspective). Both perspectives must be taken into account.
What steps does a double materiality analysis involve?
1. stakeholder identification: identify and prioritize relevant interest groups
2. data collection and analysis: collection and analysis of ESG data, internal key figures and stakeholder feedback.
3. materiality assessment: assess topics according to financial and impact materiality, usually in a materiality matrix.
4. visualization and reporting: document results transparently and present them in the sustainability report.
What are typical challenges in practice?
- Missing or insufficient stakeholder involvement
- Difficulties with data procurement and quality
- Unclear prioritization of topics
- Non-transparent assessment methodology
What best practices are there?
- Early and systematic stakeholder analysis
- Clear, transparent evaluation methodology
- Regular updating of the analysis
- Comprehensible documentation and communication of the results
What role does external consulting play?
External consultants contribute methodological expertise, regulatory experience and an independent perspective. They provide support with planning, data collection, moderation of workshops, evaluation and reporting - and help to avoid typical mistakes.
Which tools and methods are used?
- ESG data management and reporting software (e.g. SAP Sustainability Control Tower, Plan A, Envoria)
- Survey tools for stakeholder surveys (e.g. Qualtrics, Typeform)
- Visualization tools for materiality matrices (e.g. Miro, Power BI, Tableau)
When is a topic material?
A topic is considered material if it is assessed as relevant from either a financial or an impact perspective. Many topics - such as climate change, biodiversity or human rights - are often material in both dimensions.
How often should the dual materiality analysis be carried out?
At least annually or in the event of significant changes in the company or environment (e.g. new regulatory requirements, market changes).