CSRD double materiality workflow

Start by defining the reporting undertaking, consolidation perimeter, business model, geographies, activities, products, services, and value-chain segments that the assessment will cover. ESRS value-chain information is not a request to document every supplier or customer; it is a requirement to include material upstream and downstream information where it is needed to understand material impacts, risks, and opportunities.

Create a source register before scoring begins. It should include ESRS 1 and ESRS 2 references, the EFRAG materiality and value-chain guidance used by the team, previous sustainability assessments, due diligence outputs, enterprise risk materials, stakeholder engagement evidence, and any sector or country data used for value-chain estimates.

Build the candidate IRO list from the undertaking's actual business context, not from a generic topic checklist. Use ESRS sustainability matters, prior assessments, due diligence findings, enterprise risk registers, incidents, complaints, workforce and community engagement, supplier information, customer-use information, regulatory changes, and sector/geography exposure to identify where IROs may arise.

For value-chain IROs, record where the matter may arise: own operations, upstream suppliers, materials and services, distribution, customer use, end-of-life, financing, or other business relationships. If primary value-chain data is unavailable after reasonable effort, ESRS allows estimates based on reasonable and supportable information available without undue cost or effort. Record the proxies, sector averages, indirect sources, assumptions, accuracy limits, and planned accuracy improvements.

Score each candidate matter for impact materiality and financial materiality before consolidating the result. A matter can be material from the impact perspective, the financial perspective, or both. Treat the two dimensions as connected but not interchangeable.

For impact materiality, assess negative impacts by severity and, for potential negative impacts, likelihood. Severity is based on scale, scope, and irremediable character; for a potential negative human-rights impact, severity takes precedence over likelihood. For positive impacts, assess scale and scope, adding likelihood only when the impact is potential. For financial materiality, record likelihood and potential magnitude of effects on development, financial position, financial performance, cash flows, access to finance, or cost of capital. Thresholds may be qualitative, quantitative, or mixed, but the undertaking must set and explain them from the ESRS criteria and its facts.

Before governance approval, run a challenge session on the IRO register. Test whether the assessment reflects the undertaking's activities, business relationships, affected stakeholders, geographies, and products rather than only the easiest data sources.

Challenge questions should focus on completeness and supportability: which affected stakeholder groups were considered, how existing engagement or due-diligence processes informed the assessment, which credible proxies or scientific sources were used, which value-chain estimates rely on sector averages, and whether missing data could change the conclusion. ESRS does not require direct engagement with every stakeholder for every matter.

The approval gate should confirm the material IRO list, the thresholds and methodology used, changes from the prior period, and the ESRS disclosure requirements covered by the sustainability statement. Approval should not be a broad sign-off on a slide deck; it should be tied to named records that can be updated, reviewed, and challenged.

After approval, map each material matter to the relevant ESRS topical disclosure requirements, ESRS 2 IRO-1 (the assessment process), SBM-3 (the interaction with strategy and the business model), IRO-2 (the disclosures covered in the statement), and any policies, actions, targets, or metrics required because the matter is material. If climate change is assessed as not material, ESRS requires a more detailed explanation than for other omitted topical standards.

Close the workflow by preserving the record of how the assessment was performed, not just the final matrix. EFRAG guidance notes that documentation can support governance of sustainability reporting and help assurance providers understand the materiality assessment process and results.

The audit trail should be versioned and reproducible. A reviewer should be able to see the source used, the evidence collected, the judgement applied, the stakeholder or value-chain limitation, the owner who approved the conclusion, and the disclosure consequence.