Double Materiality Implementation Guidance | Tunley Environmental

Although the Corporate Sustainability Reporting Directive (CSRD) is currently under policy review by the European Commission to explore ways of simplifying its application, conducting a Double Materiality Assessment (DMA) while awaiting final guidance on the CSRD is essential. This enables companies to prepare proactively and align with existing expectations under the European Sustainability Reporting System (ESRS). For organisations preparing for CSRD, having a double materiality implementation guidance in place enhances compliance for all sustainability reporting systems, not just CSRD. This process gives Environment, Social and Governance (ESG) managers, directors and CEOs in high-impact industries an organised way to identify the financial risks and the greater environmental and social effects of their businesses. 

What is Double Materiality? 

Double materiality builds on traditional materiality (which looks at how issues affect the company financially) by adding a second dimension: How the company’s activities affect society and the environment. 

This requires a company to evaluate: 

• Impact materiality: The actual or potential impacts of a company’s activities, products or services on the environment and people (e.g. biodiversity loss, human rights violations). 

• Financial materiality: Sustainability risks and opportunities that could affect the company's enterprise value (e.g. exposure to carbon pricing or litigation). 

Outlining both aspects of materiality is important for sustainability reporting in an organisation. Essentially, if a topic is deemed material, it must be disclosed under DMA.  

Learn More: What is Double Materiality Assessment | Tunley Environmental 

EFRAG’s Double Materiality Implementation Guidance 

In 2024, the European Financial Reporting Advisory Group (EFRAG) published Implementation Guidance 1: Materiality Assessment, offering practical direction for companies embarking on their double materiality journey. This double materiality implementation guidance outlines a structured process that companies must follow to determine which sustainability topics are material and therefore reportable under the ESRS. 

Materiality Assessment Implementation Guidance. | Image credit: EFRAG Implementation Guidance 

EFRAG’s 6-Step Materiality Process 

Step 1: Map the Sustainability Universe - Start with the full list of ESRS topics (over 80 in total) and consider sector-specific concerns. For example, construction firms might focus on embodied carbon and circularity while automotive firms might prioritise supply chain and human rights. 

Step 2: Identify and Engage Stakeholders - Map all stakeholders affected by or capable of influencing your operations. This includes: 

• Employees and unions 

• Local communities 

• Investors and shareholders 

• NGOs and regulators 

• Nature (as a non-human stakeholder) 

Effective stakeholder engagement should go beyond surveys; it should include interviews, workshops, grievance mechanisms and dialogue across geographies. 

Step 3: Assess Impact Materiality - Evaluate how your company’s activities affect the environment and people. Key criteria include: 

• Scale (how severe is the impact?) 

• Scope (how many people or ecosystems are affected?) 

• Irremediability (can the damage be reversed?) 

• Likelihood (is it a current or future risk?) 

Step 4: Assess Financial Materiality - Analyse how sustainability issues could affect your enterprise value. For this, the double materiality implementation guidance recommends the following: 

• Regulatory changes (e.g. CBAM or carbon pricing) 

• Market dynamics (e.g. customer expectations) 

• Reputational risks (e.g. greenwashing) 

• Operational disruption (e.g. water scarcity, supply chain instability) 

Step 5: Prioritise and Document - Rank topics based on materiality and decide which to report on. These material issues must be clearly documented, justified and regularly reviewed. 

Step 6: Disclose in the Sustainability Statement - Material topics are reported in a structured format aligned with the ESRS. You must explain: 

• The process followed 

• Stakeholders consulted 

• Criteria used to assess materiality 

Sector-Specific Application of Double Materiality Assessment 

Conducting double materiality assessments in high impact sectors requires a distinctive approach that addresses the specific challenges of each sector. Below is an overview of how a double materiality approach can be applied to emissions reporting in various sectors: 

Construction 

• Impact materiality: High GHG emissions, biodiversity loss from land development, worker health and safety. 

• Financial materiality: Vulnerability to green building regulations, climate-adapted materials, and CBAM exposure. 

Ports and Airports 

• Impact materiality: Noise pollution, air quality, community disruption, ecosystem fragmentation. 

• Financial materiality: Transition risks due to electrification mandates, climate disruption to operations. 

Manufacturing 

• Impact materiality: Waste, water pollution, worker safety in global supply chains. 

• Financial materiality: Energy price volatility, resource scarcity, ESG-linked financing conditions. 

Automotive 

• Impact materiality: Supply chain emissions, EV battery sourcing, end-of-life vehicle recycling. 

• Financial materiality: Changing consumer demand, EU battery regulation, supply chain bottlenecks. 

Medical Devices 

• Impact materiality: Plastic waste, ethical sourcing of raw materials, patient data protection. 

• Financial materiality: ESG procurement standards in public health systems, data privacy litigation risks. 

Common Challenges Faced by ESG Managers in Double Materiality Assessment 

Despite the clarity offered by EFRAG, many companies still find double materiality implementation daunting. The most common challenges include: 

• Data gaps: Incomplete or inconsistent sustainability data across subsidiaries or tiers of the supply chain. 

• Cross-functional collaboration: ESG, finance, legal and operations teams often don’t collaborate effectively. Deliberate effort is required to ensure synergy between the various departments. 

• Lack of stakeholder engagement frameworks: Many firms lack established methods for gathering input from communities, employees or advocacy groups. 

• Unclear thresholds: Determining what qualifies as “material” is not always straightforward and can appear subjective. The EFRAG guidance helps by giving a clearer idea of what constitutes material in sustainability reporting. However, even with a framework in place, continuous internal alignment, senior leadership support and investment in data infrastructure are all crucial for successfully embedding materiality practices into long-term sustainability reporting. 

Double materiality is a collaborative effort between various aspects of a business. For ESG managers who want to ensure comprehensive reporting, they can work closely with third-party sustainability experts to operationalise double materiality implementation guidance in line with EFRAG expectations. 

The Bottom Line 

Beyond CSRD expectations, double materiality comes with various benefits, as it offers deeper insights into an organisation’s ESG impact. Embedding this process into your core business activities provides you with a proactive lens through which you can see risk, opportunity and the impact on your company. As ESG frameworks become more convergent on a global scale and transparency demands grow, following EFRAG’s double materiality implementation guidance can enhance the company’s overall sustainability strategy.