Double Materiality Assessment Under the Revised ESRS: A Step-by-Step Guide for 2026
The EU Omnibus Directive was published in the Official Journal on 26 February 2026. Scope narrowed. Timelines shifted. Datapoints fell. But one thing did not change: if your company is in scope for the CSRD, you must still complete a double materiality assessment before you can determine what to report.
In fact, the DMA just became more important, not less. Here is why - and how to do it properly.
What Double Materiality Means, and Why It Survived the Omnibus
Double materiality requires companies to assess sustainability topics from two separate perspectives. A topic is material - and must be disclosed - if it passes either test.
Double materiality has two dimensions: impact materiality and financial materiality, which are interrelated.
- Impact materiality (inside-out): Does your company have actual or potential impacts on people or the environment - through your own operations or your value chain?
- Financial materiality (outside-in): Could sustainability matters affect your company's development, financial performance, or position - through risks or opportunities?
Impact OR financial materiality is sufficient to trigger disclosure. You do not need both. A topic that is clearly impact-material must be reported even if no financial effect is currently visible, and vice versa.
The Omnibus simplification package raised the CSRD's employee and turnover thresholds, but it expressly retained double materiality as the core mechanism. The Omnibus Directive (Directive (EU) 2026/47) was published in the EU Official Journal on 26 February 2026, following Council adoption on 24 February 2026. The principle was never on the table for removal: the scope has narrowed, timelines have adjusted, but one thing has not changed - every company still in scope must complete a CSRD double materiality assessment before it can determine what to report.
What Changed in the Simplified ESRS 1
EFRAG delivered its final technical advice on the revised ESRS to the European Commission on 3 December 2025, including a substantially updated ESRS 1 (General Requirements) that governs the DMA process. The Commission's formal adoption of the delegated act is expected in summer 2026 - the final text may differ slightly from the technical advice.
The November 2025 ESRS 1 draft introduces several meaningful changes to the DMA process, while keeping the core fully intact. Overall, the direction is clear: from compliance-driven checklists toward strategic, judgment-based assessments.
The four most consequential changes for DMA practitioners:
Top-down assessment is now explicitly permitted. Simplified ESRS 1 explicitly permits top-down assessment, starting at the topic level. Previously, the default was a bottom-up IRO-by-IRO crawl. You can now conclude materiality at the topic level first and only drill into detailed IROs for topics that pass the initial filter.
Qualitative analysis is sufficient where the conclusion is clear. Under the Simplified ESRS, qualitative analysis is sufficient where the conclusion is clear - the evidence burden has been reduced relative to the original ESRS.
Voluntary datapoints are gone entirely. EFRAG's final technical advice reported roughly a 61% nominal reduction in datapoints across the ESRS. All voluntary disclosure requirements have been eliminated. Every remaining datapoint is mandatory if the topic is material. This makes the DMA the gatekeeper: under the Simplified ESRS, materiality operates as an overarching filter - only material information is disclosed.
Fair presentation governs the whole statement. The revised ESRS 1 frames the entire sustainability statement, including the DMA, under the concept of "fair presentation." This means the DMA should result in a complete, neutral, and accurate depiction of material impacts, risks, and opportunities.
The practical consequence: because there are no longer any voluntary disclosures to fall back on, a weak or undocumented DMA is now the single biggest compliance risk. If your DMA is thin, your report will either be incomplete or over-reported - and your auditor will notice both.
Wave 1 companies (those already reporting under the NFRD) continue under the original 2023 ESRS until the revised standards are formally adopted. Wave 2 companies — those newly in scope under the Omnibus thresholds of 1,000+ employees and €450m turnover — will most likely report directly under the amended ESRS from FY2027 onward. If you are unsure which wave applies to you, use the CSRD scope checker.
The DMA Process: Seven Steps
Two fundamental shifts that the CSRD and ESRS introduce are establishing the DMA as a mandatory process and encouraging fact-based materiality over perception-based materiality - meaning the assessment should not be based on subjective stakeholder opinions, but on actual and potential impacts, risks, and opportunities backed up by evidence or justified assumptions.
Here is a step-by-step process aligned with ESRS 1 and EFRAG Implementation Guidance 1 (IG 1).
Map your business model, sectors, geographies, and the full value chain — upstream suppliers, own operations, and downstream customers. This scoping step determines where your impacts and dependencies actually sit. Include entities outside your consolidation boundary if they are part of your business relationships: financial materiality under ESRS 1 explicitly extends to upstream and downstream value chain risks and opportunities, not just entities you control.
Identify all potential impacts, risks, and opportunities (IROs) across the ESRS topic list (E1–E5, S1–S4, G1) and any entity-specific topics not covered by the standards. Use existing sources: previous materiality assessments, sector benchmarks, scientific databases, regulatory registers, and internal risk registers. The revised ESRS 1 permits a top-down approach — you can start at the topic level and only drill into IRO detail for topics that are plausibly relevant. Topics that are clearly irrelevant to your business model can be filtered out at this stage with a brief documented rationale.
Stakeholder engagement is a required input to the DMA, not an optional add-on. ESRS recognises two key categories: those affected by your impacts (workers, communities, customers, suppliers) and users of the sustainability statement (investors, lenders, analysts). Map who to consult, design the engagement (surveys, interviews, workshops), and — critically — document how their input influenced your conclusions. This documentation feeds directly into the mandatory ESRS 2 IRO-1 disclosure.
For each IRO on your longlist, score impact materiality using the ESRS criteria: scale (how severe is the impact?), scope (how many people or how much of the environment is affected?), irremediable character (how hard is it to reverse?), and likelihood (for potential impacts only — actual impacts are material regardless of probability). For potential negative human rights impacts, severity takes precedence over likelihood. Combine these into a severity score for each IRO.
Separately assess each IRO from the financial perspective: could this issue trigger material financial effects on the company — through costs, revenues, asset values, access to capital, or reputational damage? Score using magnitude, likelihood, and time horizon (short, medium, long term). Keep the two scores separate. Do not blend impact and financial scores into a single number — auditors will check that the two perspectives were maintained independently.
Set your materiality threshold before scoring, not after. The threshold can be qualitative or quantitative (e.g. 'potential impacts scoring ≥ 9/15 are material'), but it must be documented with a clear rationale and applied consistently across all topics. A topic is material if it passes either the impact or the financial threshold. Once material topics are confirmed, map them to the relevant topical ESRS standards — these are the standards you must report against. Topics that fall below the threshold must still be listed in your ESRS 2 IRO-2 disclosure, with a brief explanation of why they were excluded.
Compile a complete DMA file: the scope and boundary of the assessment; the methodology (top-down, bottom-up, or combined); the IRO longlist and how it was built; scoring matrices and threshold rationale; stakeholder engagement records; and the final list of material topics with supporting reasoning. Then obtain formal sign-off from senior management or the board. The DMA is subject to limited assurance — your auditor will review this file, not just the published report.
Use Our Materiality Matrix Builder
Once you have scored your IROs, you need to visualise and sense-check the results. Our free materiality matrix builder lets you plot impact and financial materiality scores side by side, apply your threshold, and export a publication-ready matrix - no spreadsheet gymnastics required.
Common Pitfalls and How Auditors Will Test Your DMA
For CSRD reporting, the double materiality assessment and its output are audited within an assurance engagement. A company must be able to submit proof of the double materiality exercise to the auditor. This includes the process followed to determine the completeness of the impacts, risks, and opportunities, and the criteria of the materiality exercise that ultimately result in the topics to be reported.
All CSRD sustainability statements are subject to limited assurance from year one. Here is what auditors are looking for - and where early CSRD filers have already stumbled.
Pitfall 1: Rushing the process without documentation
When conducting an initial materiality assessment, some companies focus solely on producing one rapidly without considering the need to document details about the process and sources of information used, or the level of detail that will need to be disclosed about the material impacts, risks and opportunities identified. The DMA file is the evidence base. Without it, your conclusions cannot be validated.
Pitfall 2: Undefined or post-hoc thresholds
Many organisations apply scoring scales without documenting what those scales actually mean. Studies examining previous sustainability assurance engagements have consistently found that undefined scoring criteria and inconsistent threshold application are the biggest drivers of scope limitations and disclosures which are hard to validate.
Pitfall 3: Blending the two materiality scores
Producing a single blended materiality score - rather than maintaining impact and financial perspectives separately - is a structural error. The two lenses must be assessed and documented independently. An IRO that scores low on financial materiality but high on impact materiality is still material.
Pitfall 4: Generic "not applicable" conclusions
If you deem ESRS E1 (Climate Change) non-material, you must provide a specific explanation of the criteria used to reach that conclusion. Auditors and regulators view Climate Change as "material by default" for the vast majority of sectors. A generic "not applicable" without sector-specific evidence is a high-risk finding.
Pitfall 5: Weak or absent stakeholder evidence
European authorities have reported multiple instances of undocumented judgments, inconsistent methodologies, and ad-hoc processes behind failed assurance exercises. In most failed cases, the problem is not what was deemed material but how that conclusion was reached, evidenced, approved, and maintained over time.
What auditors will specifically test:
IRO longlist completeness - were all ESRS topics considered? Scoring methodology - is there a documented, consistently applied scoring matrix? Stakeholder evidence - can you show who was engaged and how their input influenced the outcome? Threshold rationale - is the materiality threshold defensible? Consistency - do the disclosed topics match the DMA output? Are any material topics missing from the report?
Involve your assurance practitioner early — ideally before you finalise your methodology. Aligning on documentation expectations upfront is far cheaper than reworking a completed DMA after the fact.
What to Do Now: A Short Checklist
This checklist applies whether you are a Wave 1 company refreshing your DMA for FY2025/26 or a Wave 2 company building one for the first time ahead of FY2027.
A Note on Timing
Wave 2 companies - those newly in scope under the Omnibus thresholds - will first report for financial year 2027, with reports published in 2028. That sounds distant. It is not. A credible DMA takes three to six months to complete properly, and the data collection that follows depends entirely on which topics your DMA flags as material. Starting in late 2026 leaves very little margin.
Given limited time to report initial disclosures, it will be helpful to involve your assurance practitioner early as you develop your materiality assessment and documentation approach. If potential concerns about the process and documentation available arise, having the auditor involved upfront will allow for sufficient time to align on expectations prior to the start of the assurance engagement.
For a plain-English overview of all 12 ESRS standards and how they connect to your DMA output, see our ESRS hub. For the full timeline of CSRD deadlines, see the CSRD deadlines page.
The Commission's final delegated act adopting the revised ESRS is expected in summer 2026. Dates and datapoint counts cited in this article are based on EFRAG's final technical advice of 3 December 2025; the Commission's adopted text may differ. Subscribe to The CSRD Brief for an alert the moment the final text is published.
This article is guidance to help you understand the CSRD and ESRS requirements. It is not legal or professional advice. Confirm specifics against the primary sources and seek qualified advice before relying on any conclusions for your own reporting.
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