Understanding CSRD: What is Double Materiality Assessment?

As the Corporate Sustainability Reporting Directive (CSRD) takes over from the Non-Financial Reporting Directive, companies operating in the European Union are now mandated to have a more detailed framework for sustainability disclosures. 

The first step to embarking on CSRD is conducting a Double Materiality Assessment to understand the interaction between a company’s operation/financial performance and the environment. 

What is Double Materiality Assessment (DMA)? 

Under CSRD double materiality forms the foundation for determining which sustainability topics companies must address in their reports, based on their significance from both business and societal perspectives. 

CSRD requires companies to: 

• Report using European Sustainability Reporting Standards (ESRS)
• Conduct a Double Materiality Assessment (DMA)
• Disclose both forward-looking and retrospective sustainability information
• Address environmental, social and governance (ESG) factors across their operations and value chains

DMA determines the scope of an organisation's sustainability reporting by identifying which sustainability matters are most relevant to disclose. Without this assessment, companies would face the overwhelming task of reporting on all sustainability matters, regardless of their relevance. Additionally, a properly executed double materiality process also generates strategic insights that enhance organisational planning and risk management. 

Read More: Updates on CSRD in 2025 

The Double Materiality Assessment Process 

DMA requires a structured way to spot, assess and rank sustainability issues that matter to organisations and their stakeholders. This process creates the foundation for all future CSRD reporting work. 

• Compile a broad universe of ESG topics relevant to the company’s sector, geography, value chain and stakeholders. 

• Leverage sector-specific guidance from ESRS, GRI Standards, SASB and TCFD. 

• Screen external trends (climate change, biodiversity, human rights, regulatory shifts) to anticipate emerging issues.
  

2. Stakeholder Mapping and Engagement 

• Identify internal stakeholders (executives, employees, investors) and external stakeholders (suppliers, NGOs, regulators, local communities).
• Use qualitative and quantitative tools: surveys, interviews, roundtables and structured consultations.
• Document stakeholder concerns and insights aligned to ESG themes.

3. Impact Materiality Analysis

• Assess the actual and potential positive or negative impacts the company has on people and the environment. 

• Evaluate severity (scale, scope, irremediability) and likelihood. 

• Consider upstream and downstream value chain impacts, not just direct operations.

4. Financial Materiality Analysis

Identify how sustainability issues could affect the company’s financial health through: 

• Revenue fluctuation 

• Cost increases (e.g. carbon pricing, water usage) 

• Asset impairment 

• Regulatory fines 

• Reputational damage 

5. Scoring, Prioritisation and Materiality Matrix Creation

• Assign quantitative and qualitative scores for both dimensions of materiality. 
• Plot each ESG issue on a double materiality matrix.
• Highlight issues that score highly on either axis – these become reportable under CSRD.

6. Validation and Governance Approval

• Engage sustainability and finance leads, senior management and board-level committees to validate the results. 
• Ensure traceability of decision-making for audit readiness.
  

7. Integration into Corporate Strategy

• Use results to define ESG KPIs, influence strategic planning and feed into risk registers. 

• Inform CSRD-aligned disclosure and communications. 

Stakeholder Engagement in the DMA Process 

Stakeholder engagement is vital to an effective double materiality assessment, allowing organisations capture different points of view on sustainability impacts, risks and opportunities.  One key aspect of this engagement is understanding the roles internal and external stakeholders play. 

Internal vs External Stakeholder Roles 

Internal and external stakeholders each contribute uniquely to the double materiality assessment, offering perspectives that strengthen both quality and credibility of results. 

Internal stakeholders know business operations and potential sustainability challenges inside out. These typically include: 

• Sustainability teams: Coordinate the assessment process and provide methodological expertise 

• Finance/Accounting: Supply insights on financial materiality dimensions 

• Legal/Compliance: Ensure regulatory requirements are properly addressed 

• HR: Provide data on social issues and workplace conditions 

• Risk management: Evaluate sustainability risks across the value chain 

External stakeholders often bring independent viewpoints that internal reviews may have missed. Customers, suppliers, investors, NGOs, local communities and regulators are all considered external stakeholders during the assessment process. Their input helps organisations understand their effects on people and the environment. This addresses the impact materiality dimension that's essential to DMA. The CSRD framework notably recognises nature as a "silent stakeholder." Nature can't speak up for itself, so companies need proxies like scientific studies, environmental impact assessments or advocacy organisations to represent environmental interests. 

Challenges and Best Practices in Conducting a DMA 

Challenges: 

• Aligning with emerging ESRS standards 

• Ensuring comprehensive stakeholder engagement 

• Collecting reliable and consistent data across value chains, including reviewing existing ESG policies 

Best Practices: 

• Begin early and allocate dedicated resources 

• Use digital tools for stakeholder input and data collection 

• Seek guidance from CSRD consultants or third-party verifiers 
• Align with international standards (GRI, ISSB, TCFD) to reduce duplication
   

The Bottom Line

Understanding Double Materiality Assessment is fundamental for any business subject to CSRD. And while conducting a CSRD-compliant DMA can be complex and resource-intensive, adopting a structured methodology means organisations are better positioned to navigate CSRD. Tunley Environmental offers end-to-end CSRD consulting services, helping businesses confidently navigate every step of the Double Materiality Assessment process. Learn more about our CSRD service here.