Double Materiality

Double materiality is the concept under the EU CSRD and ESRS requiring companies to assess sustainability topics from two perspectives simultaneously: (1) Financial materiality (also called ‘outside-in’): how sustainability risks and opportunities affect the company’s financial performance, cash flows, or access to capital; and (2) Impact materiality (also called ‘inside-out’): how the company’s activities, products, and value chain affect people and the environment. A topic is material if it is material from either or both perspectives. ESRS 1 (General Requirements) defines the Double Materiality Assessment (DMA) process. EFRAG’s proposed revised ESRS (exposure drafts, July 2025) simplifies the DMA process.

CSRD (EU) 2022/2464; ESRS 1 General Requirements, Commission Delegated Regulation (EU) 2023/2772; EFRAG Simplified ESRS Exposure Drafts (July 31, 2025).

The Double Materiality Assessment (DMA) is the mandatory first step for CSRD-scoped companies. It determines which ESRS topics are material and therefore which disclosures are required in the annual sustainability statement. Companies with complex value chains (e.g., electronics, automotive, textiles) typically identify a broader set of material topics. The EFRAG revised ESRS (July 2025) simplifies the DMA, reducing the number of data points required.