CSRD double materiality method for ESRS reporting

The method should begin by defining the reporting undertaking, its business model, activities, products, services, geographies, value-chain relationships, and users of the sustainability statement. The assessment then identifies impacts, risks and opportunities across environmental, social, human rights and governance matters.

Do not treat ESRS AR 16 topic, subtopic and sub-subtopic lists as the final answer. Use them as a starting structure, then test whether actual or potential IROs make the matter material and whether the ESRS disclosure requirements or entity-specific disclosures are needed.

Impact materiality asks whether the undertaking has or could have material positive or negative impacts on people or the environment. The assessment should cover own operations and upstream and downstream value-chain impacts connected through products, services and business relationships.

Financial materiality asks whether a sustainability matter generates risks or opportunities that affect, or could reasonably be expected to affect, financial position, financial performance, cash flows, access to finance or cost of capital over short-, medium- or long-term horizons. The same matter may be material from one perspective without being material from the other.

The materiality assessment should not stop at consolidated entities and direct suppliers. ESRS value-chain coverage includes own operations plus activities, resources and relationships used or relied on from conception to delivery, consumption and end-of-life, including upstream and downstream actors.

Value-chain information is not required in every disclosure. It is needed when connected to material IROs beyond own operations and when the relevant disclosure requirement calls for it. If primary information from value-chain actors is not available after reasonable efforts, ESRS implementation guidance supports using reasonable and supportable estimates, proxies, sector data, or other indirect sources, with transparent disclosure of estimation limits where metrics use value-chain estimation.

ESRS sets materiality criteria but does not prescribe one universal threshold for all undertakings. The method therefore has to define the qualitative or quantitative thresholds used for impact materiality and financial materiality and explain how judgement was applied when evidence was incomplete or borderline.

Thresholds should not hide severe impacts by averaging them into a large group result. Where aggregation would obscure a material impact, risk or opportunity, the assessment should disaggregate by country, significant site, significant asset, subsidiary or another level that faithfully represents the issue.

EFRAG IG 1 says ESRS does not prescribe a specific documentation format for the materiality assessment, but documentation is reasonable for internal governance, ESRS 2 IRO-1 disclosures and assurance work. The evidence file should make the conclusion reproducible without turning the sustainability statement into a data dump.

A useful record links each materiality conclusion to the source evidence, the criteria applied, the responsible reviewer, and the ESRS disclosures affected. It should also preserve non-material conclusions where they explain omitted metrics or topics, especially where climate disclosures are omitted because no material climate IROs were identified.