Double materiality under the CSRD

Short answer: The CSRD requires in-scope undertakings to conduct a double materiality assessment before preparing their sustainability statement. This means evaluating which sustainability matters are material from an impact perspective (what does the undertaking do to people and the environment?) and from a financial perspective (what do environmental and social factors do to the undertaking?). A matter that is material from only one perspective must still be reported.

Legal basis

Directive (EU) 2022/2464 (CSRD) amended Articles 19a and 29a of Directive 2013/34/EU. Recital 29 of the CSRD sets out the core principle: "the risks to the undertaking and the impacts of the undertaking each represent one materiality perspective." Both perspectives must be assessed independently; undertakings report on information that is material from one or both perspectives.

The two perspectives explained

Impact materiality (ESRS 1, §§ 43-46) concerns actual or potential, positive or negative consequences of the undertaking's activities for people and the environment. For actual negative impacts, the assessment is based on severity (scale, scope, and irremediable character). For potential negative impacts, likelihood is also taken into account — except for potential negative human rights impacts, where severity takes precedence over likelihood.

Financial materiality (ESRS 1, § 49) relates to sustainability matters that generate risks or opportunities with a material influence on the undertaking's financial development, position, performance, cash flows, access to finance, or cost of capital — over the short, medium, or long term.

Practical implementation

EFRAG published non-binding implementation guidance on 31 May 2024 (IG 1 Materiality Assessment) to support undertakings in carrying out the assessment. The Dutch financial markets authority (AFM) published ten navigation points in July 2024. Key points include: cover the entire value chain, ensure stakeholder engagement is demonstrably transparent, and explicitly distinguish between the materiality of impacts, risks, and opportunities.

Scope and timeline

The first cohort of mandatory reporters comprises large public-interest entities with more than 500 employees (financial year 2024). Under the Omnibus I proposal, the next threshold shifts: from financial year 2027 onwards, the obligation will apply to all European undertakings with net turnover above €450 million and more than 1,000 employees. Dutch implementing legislation had not been finalised at the time this article was published; RVO confirms that undertakings that already report in accordance with ESRS for 2024-2025 meet the statutory requirements.