Demystifying Double Materiality Assessments – turning compliance into competitive advantage

What is double materiality? How does it impact my business? And how can I take full advantage of the assessment?

Leading ESG and CSRD specialist at Ricardo, Alejandra Verlade,  answers the biggest questions on double materiality and its growing importance in corporate sustainability. 

Understanding double materiality

Can you explain the concept of double materiality and how it differs from traditional materiality assessments?

Double materiality expands the traditional view of materiality by looking at sustainability from two perspectives. The first is how the company’s own activities impact on society, environment, and stakeholders (impact materiality).

The second evaluates risks and opportunities arising from sustainability topics that may affect the company’s financial performance, position and value creation.

Traditional materiality focuses only on impacts, whereas double materiality also recognises the financial risks and opportunities that sustainability topics may have on a company’s financial performance.

Impact materiality
Your business's outward impact on the planet and society

Financial materiality
The planet and society's impact on your business

How do impact materiality and financial materiality interact in practice?

These two dimensions are deeply interconnected. Issues that begin as impact materiality, such as carbon emissions or supply chain labour conditions, can quickly evolve into financial risks as regulations tighten or stakeholder expectations shift. By analysing both sides together, companies can anticipate where social and environmental impacts may translate into financial consequences. This integrated view supports stronger decision-making and more resilient strategies.

What is the most common misconception companies have about double materiality?

Double materiality is often driven by compliance requirements under CSRD. However, reducing it to a regulatory exercise misses its real value. A well-executed double materiality assessment is the foundation of both ESG reporting and ESG strategy, enabling organisations to identify and prioritise what truly matters. When done properly, it provides critical insight into how sustainability influences long term value creation and business resilience.

Who should conduct a double materiality assessment?

While the Corporate Sustainability Reporting Directive (CSRD) makes double materiality assessments mandatory for companies under the CSRD scope, forward-looking organisations are increasingly undertaking double materiality assessments on a voluntary basis. Beyond compliance, a double materiality assessment serves as a strategic instrument to identify impacts, financial risks and opportunities, strengthen governance, enhance transparency, and support long term value creation.

Organisations under CSRD Scope

Determining who should conduct a double materiality assessment requires a clear understanding of the CSRD scope and the impact of recent regulatory developments on different types of organisations.

Voluntary DMA Assessment 

Companies outside the current CSRD scope can derive significant strategic and operational value from conducting a double materiality assessment. A voluntary assessment strengthens stakeholder confidence and supports informed decision making. It enables organisations to identify the sustainability topics with the most significant impacts on stakeholders and those that represent material risks and opportunities for their financial position. Furthermore, it demonstrates proactive governance and responsible leadership, creating a competitive advantage in engagements with investors, clients, and other key stakeholders.

What are the key differences between voluntary and mandatory double materiality assessments under ESRS?

The key distinction lies in the level of obligation and scrutiny. Mandatory assessments apply to organisations within the scope of the CSRD and must be conducted in line with newly simplified European Sustainability Reporting Standards (ESRS 1). Voluntary assessments, by contrast, allow companies to apply the same principles with greater flexibility. When aligned with ESRS guidance, voluntary assessments can still enhance credibility and demonstrate proactive sustainability governance.

What are the most significant updates to the Double Materiality Assessment in the draft simplified ESRS 1?

In 2025, the European Financial Reporting Advisory Group introduced several simplifications and clarifications to the Double Materiality Assessment with the publication of the final simplified ESRS 1 in December.

Key updates include:

• A shift towards a top-down approach to the DMA, starting from the company’s business model, strategy, and sector context, before identifying material topics and related impacts, risks, and opportunities. This represents a move away from a purely bottom up and exhaustive scoring exercise.
• An explicit emphasis on fair presentation, reinforcing the need for balanced, accurate, and decision useful disclosures.
• Simplification of the materiality assessment process to avoid unnecessary administrative effort, refocus on the usefulness of information, and support companies in disclosing only what truly matters.
• Clarification that no datapoints are required to be disclosed outside the scope of information materiality.
• Clearer reporting boundaries, including a stronger distinction between own operations and the value chain.
• Principles based guidance on how to consider prevention, mitigation, and remediation actions when assessing the materiality of impacts, including the introduction of the concept of inherent impact, reflecting feedback received during field testing.
• Reliefs without time limits, subject to transparency mechanisms and an expectation that coverage improves over time. These include reliefs related to metrics, acquisitions, joint operations without operational control, and non-material activities.
• Removal of the systematic preference for direct data when reporting value chain metrics, allowing for more pragmatic and proportionate data sourcing approaches.
• Greater flexibility in the level of granularity of reporting, enabling disclosures by topic or by specific impacts, risks, and opportunities, aligned with internal management practices.
• A more flexible disclosure approach, including the option to use internal references, provide contextual nonmaterial information, and present appendices or executive summaries. This aims to improve readability, respond to user needs, and avoid duplication and boilerplate reporting.

Strategic benefits of Double Materiality Assessments

What strategic benefits can companies gain from conducting a DMA?

A double materiality assessment enables companies to identify sustainability topics that directly influence long-term value creation. 

A DMA forms the foundation of a company’s ESG strategy and ESG reporting. It helps organisations identify the sustainability issues that are both material to stakeholders (impact materiality) and financially significant to the business (financial materiality). These insights guide the prioritisation of governance, actions, metrics and targets, ensuring that the company’s strategy focuses on areas with the greatest relevance to long-term value creation and stakeholder expectations.

In addition, the DMA provides the foundation for credible and transparent ESG reporting, ensuring that disclosures are relevant, data-driven, and aligned with leading sustainability standards such as the Global Reporting Initiative (GRI) and the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards. By identifying and prioritising material topics, the DMA enables organisations to report consistently across frameworks, demonstrate accountability, and enhance comparability of their ESG performance. 

Moreover, the risks and opportunities identified through the assessment are critical inputs for the organisation’s risk management framework, ensuring that sustainability-related risks are monitored, managed, and integrated into overall business decision-making.

How does Ricardo support clients with Double Materiality Assessment?

Materiality assessments are now recognised as strategic tools, enabling companies to integrate ESG and sustainability considerations into corporate strategy, governance, and decision-making.

Ricardo offers a tailored approach to the double materiality assessment process. Every process is carefully reviewed and adapted to reflect each client’s business context, priorities, and expectations. Our approach is flexible, ensuring the process evolves alongside your organisation’s needs.

We provide a comprehensive range of services covering the entire materiality assessment journey. Some companies prefer to begin with the impact materiality assessment and then, at a later stage, complete the financial materiality assessment. Others choose to conduct a full double materiality assessment from the outset. What matters most is that your team feels confident and supported throughout the process, with a clear roadmap for progression, capability building, and long-term integration of sustainability insights into business strategy.

Ricardo’s solutions are designed to meet different levels of internal capacity and expertise, ranging from advisory services to hybrid and full support models.

• Advisory Model
  Our advisory model provides bespoke tools, expert guidance, and structured feedback while leaving the execution of key actions with the client. This model is ideal for organisations seeking to retain ownership of the process while benefiting from external expertise.
• Hybrid Model
  The hybrid approach focuses on collaboration and upskilling. We work alongside your team, sharing responsibility for tasks and offering continuous support at each stage. By the end of the process, your team will be fully equipped to conduct future materiality assessments independently, ensuring long-term capability and confidence.
• Full Support Model
  In the full support model, Ricardo’s experts manage the entire process from start to finish. We plan, execute, and deliver all stages of the assessment, making this model ideal for organisations with limited time or internal resources. Clients can rely on our team to ensure precision, compliance, and efficiency throughout.

At Ricardo, our ultimate goal is to provide customised support that empowers our clients. We want you to understand the process, learn from it, and generate lasting value for your organisation.

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