Sustainable Foundations: Understanding Double Materiality in 2025

Introduction 

At its heart, double materiality embodies the concept that companies share a relationship with the wider world around them. Businesses affect the world in various ways, and, in turn, the world affects business.  

Double materiality assessments (DMAs), then, represent a conceptual shift in how companies assess and report on environment, social, and governance (ESG) topics. At their core, they require organizations to evaluate both their impact on the world (impact or outward materiality) and how ESG issues affect their operational and financial performance (financial or inward materiality), which serves to better assess business risk and opportunity. 

Right now, the EU’s Corporate Sustainability Reporting Directive (CSRD) requires that companies that meet the compliance threshold must conduct a DMA. While the threshold for reporting is currently under review as part of the Omnibus Simplification Proposal, the current proposal extends the requirement to any company that generates more than €450 million in EU revenues and has a branch or subsidiary on the continent. And yet, according to the European Financial Reporting Advisory Group (EFRAG) in its 2025 State of Play report, over 40% of companies still have not conducted such an assessment. 

This gap between requirement and readiness will only become more salient as mandatory sector-specific standards are introduced. Companies must not only understand their current impacts but also prepare for more granular, industry-specific reporting requirements. 

Here, we offer an introduction to the process of building a robust and strategically valuable double materiality assessment. 

What goes around: why DMAs?

Companies find their most strategically significant ESG issues where impact and financial materiality converge. Consider a manufacturer's water usage: excessive consumption both depletes local water resources (impact) and exposes the company to supply risks and higher costs (financial). Similarly, strong labor practices protect workers (impact) while reducing turnover and boosting productivity (financial). EFRAG consistently finds that companies mastering these intersections achieve both superior ESG outcomes and better financial performance. This overlap creates a natural priority list for ESG initiatives, helping organizations allocate resources where they can generate the greatest combined value. 

Designing your DMA

Because every company and sector is different, there’s no one-size-fits-all methodology for DMAs: each business must develop its own approach and definition of materiality relevant to its operations and context. That said, a double materiality assessment can commonly be broken down into four steps: 

First, companies need to understand their context by analyzing their business activities, relationships, and stakeholders. According to EFRAG's latest guidance, companies must examine their key activities, business relationships, and geographic locations to establish comprehensive assessment boundaries. This involves mapping out operations and supply chains, and identifying key affected groups, from employees to local communities.  

The second step involves identifying actual and potential impacts, risks, and opportunities (IROs) related to sustainability matters. Companies should consider ESG issues, looking both at their direct operations and their value chain. This isn't just about checking boxes; it's about understanding real-world effects and potential business implications. 

When establishing assessment criteria, the CSRD’s ESRS framework requires moving beyond stakeholder opinions toward data-centered materiality—in other words, backing up your decision-making processes with evidence. For this reason, data collection requires a multi-pronged approach, comprising: 

• Internal reports and ESG performance metrics
• External publications and industry benchmarks
• Stakeholder engagement findings
• Scientific research and regional studies
• Secondary sources where primary data gaps exist 

 The assessment

The third step of your DMA is where the analysis happens. 

For impact materiality, companies assess the materiality of the ESG topics, with the goal of identifying the topics where the management of those issues have a significant positive or negative impact to stakeholders, the environment, and society. It is also important to identify the severity of their impacts based on criteria such as scale (how grave the impact is); scope (how widespread it is); and irremediable character (whether the damage can be fixed). For potential impacts, they also need to consider likelihood. 

Financial materiality assessment focuses on how sustainability issues might affect the company's bottom line, cash flows, and access to capital. Companies need to set appropriate thresholds—both quantitative and qualitative—to determine what's material from a financial perspective. 

From here the next critical step is to see where impact and financial materiality overlap, or which topics meet the definition of “double materiality.” These are topics that significantly impact an organization's operations as well as how the organization outwardly impacts the environment, society, and its stakeholders. This is typically established by developing a double materiality matrix, which maps the ESG topics by their impact and financial materiality.  

Reporting and documentation 

The fourth and final step of the DMA is reporting your findings. The report should document both the process and outcomes of the assessment, including how material impacts, risks, and opportunities were identified and evaluated. Key components include: 

• A description of the assessment process
• Explanation of thresholds used for both impact and financial materiality
• Double Materiality Matrix
• List of identified material IROs and their significance
• Documentation of stakeholder engagement 
• Changes in material IROs since previous reporting 
• Explanation of how information relevance was determined
• Details of policies, actions, and targets for material matters 
   

The report should be transparent about areas where no actions are currently in place for material issues. All conclusions should be supported by evidence and clearly linked to the company's broader sustainability strategy.  

Common pitfalls  

There are several aspects of the DMA process that can trip companies up. One is the temptation to net positive impacts against negative ones, and that’s not allowed. Another is treating everything as material: by their nature, all topics included in the assessment are important, but their materiality in relation to the impact/financial framing and in relation to one another must be assessed. In other words, just because something isn’t highly material doesn’t mean it should be de-prioritized. 

A crucial aspect often overlooked in the DMA process is stakeholder engagement. While it’s not mandated, stakeholder engagement pays dividends because input from affected groups can provide valuable insights for the assessment process, and because when quantitative measures (hard data) aren’t available, qualitative metrics—for example, survey answers—can help guide the assessment.  

Tips for success 

Throughout the DMA process, companies should: 

• Keep documentation clear and comprehensive
• Use both quantitative and qualitative data where possible
• Consider sector-specific issues
• Review and update the assessment every two to four years, or following key organizational changes 
• Ensure consistency across the organization
• Consider the entire value chain 

Looking ahead 

As sustainability reporting requirements continue to evolve, and countries globally continue to adopt new standards, having a robust double materiality assessment process will be increasingly important. Research consistently shows that performing a robust DMA can help your firm unlock strategic value, manage risk, better understand stakeholder perspectives, and differentiate your business from the competition. The bottom line? Double materiality isn't just about compliance—it's about better decision-making in an increasingly sustainability-conscious world. 

To learn more about how companies are leveraging the outcomes of their DMAs to unlock strategic value, join Trio’s webinar ‘Materiality in Motion: Post-DMA Reflections and Organizational Integration‘ taking place on Thursday, October 02, 2025 at 2PM (BST) / 3PM (CEST) / 9AM (ET). Further details can be found here.