In 2025, the double materiality approach is front and center, requiring companies to assess both how ESG issues affect enterprise decision-making and how both the positive and negative impacts their business has on the people and on environmental issues like climate change.
This shift is changing how boards set strategy, how sustainability leaders evaluate risk, and how their teams engage with investors, regulators, and customers.
For multinational companies and fast-scaling SMEs, a double materiality assessment isn’t just about avoiding non-compliance — it’s about understanding your full risk-and-impact footprint, shaping credible ESG disclosures, and earning the trust that drives capital access, customer loyalty, and long-term value creation.
Let’s dive into how double materiality is shaping key sustainability matters, namely voluntary and mandatory reporting requirements.
What is double materiality?
Double materiality means assessing sustainability issues through two distinct but interconnected material impacts:
- Financial materiality: How environmental, social, and governance factors affect your company’s financial performance, enterprise value, and risk profile.
- Impact materiality: How your company’s operations, products, and services impact people, communities, and the environment (and whether or not those impacts have immediate financial implications).
The idea of double materiality first surfaced in EU policy circles and was codified under the Non-Financial Reporting Directive (NFRD). Today, it is fully embedded in the Corporate Sustainability Reporting Directive (CSRD) through the European Sustainability Reporting Standards (ESRS), which explicitly require companies to consider both the financial impacts of sustainability issues and their broader environmental and social impacts.
Globally, the International Sustainability Standards Board (ISSB), under the IFRS Foundation, has developed standards (IFRS S1 and S2) that remain focused on financial materiality — sometimes called “single materiality.” But the concept of double materiality in Europe is influencing the broader reporting landscape.
Voluntary frameworks such as the Global Reporting Initiative (GRI) have long embraced a wider lens, encouraging companies to measure and disclose their outward impacts on society and the environment. EFRAG (European Financial Reporting Advisory Group) has been credited with setting benchmarks and guidance to help companies navigate double materiality risk management.
Together, these developments are pushing companies beyond a narrow focus on shareholder value, toward disclosures that capture a fuller picture of enterprise and societal risk.
As a result, double materiality has become a core expectation not only in Europe but also across sector-specific standards, voluntary ESG frameworks, and multinational reporting strategies, shaping how global enterprises approach transparency and long-term value creation.
Here are some examples of how these material topics might be relevant to your industry:
- For an oil & gas company, climate risk might be financially material (asset impairment, carbon pricing exposure) and impact material (GHG emissions, biodiversity loss).
- For a tech company, data privacy might be financially material (regulatory fines, brand trust) and impact material (human rights implications).
Materiality vs. double materiality: Understanding the difference
While materiality has long been a principle in financial reporting, its traditional definition is one-dimensional and focused only on what is significant to investors. Double materiality expands that view to cover other potential impacts.
Here’s a quick reference comparison:
How to conduct the double materiality assessment process
Performing a double materiality assessment requires structured stakeholder engagement, robust data gathering, and a methodology aligned with recognized standards.
Step 1: Define scope and objectives
Identify the business units, geographies, and value chain stages in scope. Then, align those objectives with regulatory requirements (e.g., CSRD compliance) and internal ESG strategy.
Step 2: Engage stakeholders
Map the internal and external stakeholders that need to be involved, including investors, employees, suppliers, regulators, community representatives, and NGOs. Use surveys, interviews, and workshops to collect insights on relevant sustainability topics.
Step 3: Identify potential ESG topics
Reference sector-specific frameworks (like the ones listed above, as well as any internal sustainability impacts you’re hoping to make), considering both current and emerging sustainability issues.
Step 4: Assess financial materiality
Look at your financial performance, enterprise value, and risk profile from a financial impact perspective. Use determining metrics like operational costs, any fines or penalties, and hiring or training costs for your employees.
Step 5: Assess impact materiality
Next, measure the environmental and social impacts across your value chain, regardless of financial effect. Use life cycle assessment (LCA) to determine material matters where relevant.
Step 6: Prioritize topics
Score each topic for financial and impact significance and visualize in a double materiality matrix (financial materiality on one axis, impact materiality on the other).
Step 7: Validate findings
Present your results to executive leadership and the board, and seek feedback from key external stakeholders.
Step 8: Integrate into ESG strategy and reporting
Link priority topics and sub-topics to measurable KPIs and disclosure requirements. Most importantly, map these back to your CSRD reporting or any other applicable frameworks.
Double materiality checklist
Use this quick checklist to prepare for your assessment:
☑ Define scope and objectives tied to regulatory obligations.
☑ Identify and map stakeholders.
☑ Gather ESG topic universe from industry frameworks.
☑ Conduct both financial and impact assessments.
☑ Score and prioritize using a matrix.
☑ Validate results internally and externally.
☑ Integrate into ESG strategy and disclosures.
Frameworks and regulations that require or encourage double materiality
While double materiality is most often associated with the European Commission’s CSRD and its underpinning ESRS, it’s increasingly referenced — either explicitly or implicitly — across multiple global frameworks.
Understanding which ones apply to your organization is critical for ensuring your ESG disclosures meet both compliance and stakeholder expectations.
Mandatory frameworks requiring double materiality
CSRD + ESRS (European Union)
The most explicit mandate. Companies must assess both impact materiality (how the business affects society and the environment) and financial materiality (how ESG factors affect enterprise value).
German Supply Chain Due Diligence Act (LkSG)
Requires companies to identify, assess, and address human rights and environmental impacts in supply chains, aligning closely with the impact materiality concept.
French Duty of Vigilance Law
Demands risk mapping and mitigation of environmental and social impacts, which necessitates a double perspective on risks.
Norway’s Transparency Act
Mandates reporting on human rights due diligence with a focus on societal impact.
Upcoming EU CSDDD (Corporate Sustainability Due Diligence Directive)
While still in rollout, its risk assessments complement double materiality by focusing on outward impacts alongside financial risks.
Voluntary frameworks incorporating double materiality principles
Global Reporting Initiative (GRI)
Built on the principle of impact materiality, often paired with investor-focused frameworks to address both dimensions.
CDP (Carbon Disclosure Project)
Primarily environmental and climate focused, but increasingly used in conjunction with GRI or CSRD-aligned reporting to address dual perspectives.
UN Guiding Principles on Business and Human Rights (UNGPs)
Encourages assessing impacts on stakeholders and communities, feeding into the “impact” side of double materiality.
OECD Guidelines for Multinational Enterprises
Includes due diligence guidance relevant to environmental and social impact assessment.
Tip: Even if double materiality isn’t explicitly required by a framework, aligning your disclosures to its principles can make your reporting more robust, comparable, and investor-ready.
Why double materiality assessments matter for consumer, investor, and stakeholder trust
Double materiality is more than a compliance exercise—it’s a trust-building tool.
- Investor trust: Demonstrates that ESG risks and opportunities are embedded in governance and strategy, aligning with sustainable finance expectations (e.g., EU SFDR, ISSB).
- Consumer trust: Signals accountability for environmental and social impacts, influencing brand preference.
- Stakeholder trust: Provides transparency to communities, NGOs, and regulators that your enterprise is managing its footprint responsibly.
A well-executed double materiality process can also improve ESG ratings and scores, enhance access to sustainable finance, and inform long-term business strategy.
The pros and cons of double materiality for ESG
When you quantify the potential impacts, from a financial perspective, of any possible sustainability risks, it can present challenges.
These will vary based on business model, but the impacts could include:
- Loss of cash flow from shifting consumer demand toward sustainable products
- Exclusion from procurement opportunities with ESG-focused buyers
- Higher operating costs due to carbon taxes or emissions trading schemes
- Supply chain disruptions from ESG non-compliance or climate events
- Rising compliance and assurance costs for ESG reporting mandates
- Higher cost of capital tied to poor ESG performance or ratings
- Impact to local communities once greenhouse gas emissions are calculated
- Legal liabilities and settlements from ESG-related litigation
- Potential valuation discount from weak ESG disclosures or governance
However, a double materiality assessment can also be incredibly illuminating to your company’s ESG program and may even lead to some financial gains, particularly from investors and consumers:
- Access to sustainability-linked loans with preferential interest rates
- Eligibility for green bonds and ESG-focused investment funds
- Revenue growth from offering low-carbon or net-zero products/services
- Ability to command premium pricing on sustainable goods
- Increased market share by aligning with consumer sustainability preferences
- Cost savings through energy efficiency, waste reduction, and circularity initiatives
- Improved supply chain resilience from sustainable sourcing practices
- Enhanced brand reputation driving stronger customer loyalty
- Stronger ability to attract and retain top talent seeking purpose-driven employers
- Long-term valuation premium tied to robust ESG performance and governance
- Reduced insurance costs through better climate risk management
- Innovation potential in new green technologies and business models
- Expanded procurement opportunities with buyers requiring ESG disclosure
- Improved capital market access due to higher ESG ratings and transparency
- Greater investor confidence from credible double materiality assessments
How software can help conduct double materiality
Manual approaches struggle with the complexity of multi-jurisdiction ESG data and stakeholder engagement. ESG management software platforms — like Pulsora — can:
Centralize and harmonize ESG data across business units, map topics automatically to CSRD/ESRS, GRI, SASB, and other frameworks, and enable stakeholder engagement through built-in survey and collaboration tools.
With automatic scoring and prioritization for materiality matrices, you can provide audit-ready documentation and assurance workflows.
What to look for in a solution that offers double materiality assessments:
- Scalability for global operations
- Cross-framework mapping
- Flexible stakeholder input methods
- Assurance readiness and version control
Turn double materiality into a competitive advantage with Pulsora
Double materiality is no longer a box to check—it’s a lens through which your investors, regulators, and customers will judge your business. The enterprises that get it right aren’t just satisfying CSRD and ESRS compliance; they’re uncovering strategic insights that drive product innovation, strengthen stakeholder trust, and de-risk growth in an unpredictable climate and market landscape.
At Pulsora, we specialize in helping large enterprises and ambitious SMEs turn ESG and carbon data into decisions—across every industry we serve. Our platform is built to handle the complexity of double materiality at scale, from data centralization to cross-framework alignment. Book an industry-specific demo to see how we can equip your team to lead with credibility and confidence.
FAQ: Double materiality and ESG reporting
Q: What’s the difference between materiality and double materiality?
A: Materiality considers only what is financially relevant to investors; double materiality considers both financial relevance and societal/environmental impacts.
Q: Is double materiality required in all ESG regulations?
A: No — currently it is mandatory under the EU CSRD (via ESRS) and increasingly adopted in voluntary frameworks like GRI, but not yet in ISSB or most U.S. rules.
Q: How long does a double materiality assessment take?
A: For large enterprises, it can take 3–6 months depending on scope, stakeholder engagement, and data availability.
Q: Can software replace stakeholder engagement?
A: No — technology streamlines and documents the process but cannot substitute for genuine stakeholder dialogue.
