In July last year, the European Commission adopted the European Sustainability Reporting Standards (ESRS). These standards apply to all companies under the Corporate Sustainability Reporting Directive (CSRD), which marks another step forward in the transition to a sustainable EU economy.

In the ESRS (European Sustainability Reporting Standards), the Double Materiality Assessment on the various ESG, (Environmental, Social, and Governance) topics, is critical. These standards are integral to supporting the CSRD assurance and non-financial reporting requirements.

The challenge is that the Double Materiality Assessment in ESG is highly complex and detailed. The assessment comprises multiple topics, sub-topics, and sub-sub-topics. Specifically, it involves:

• 10 topics
• 36 sub-topics
• 92 sub-sub-topics

These elements serve as data points for evaluating and reporting on various ESG factors. The range of these categories shows how thorough the Double Materiality Assessment is. It makes sure to include many environmental, social, and governance issues.

This complexity shows how detailed ESG reporting is. It is important to think about many layers of impact. These impacts include financial effects and how they matter to stakeholders.

How the Double Materiality Assessment connects to ESRS 1, 2, and ESRS E1 to G1

ESRS 1 (General principles): This standard provides the overarching guidelines for sustainability reporting, emphasising the importance of double materiality. It makes sure that companies share information about sustainability. This includes how it affects their finances and impacts people and society. Double Materiality Assessment aligns with ESRS 1 by identifying and disclosing relevant sustainability issues comprehensively.

ESRS 2 covers important rules for sharing information about a company’s strategy, governance, and materiality assessment. The Double Materiality Assessment helps identify important topics that companies need to report on regarding environmental, social, and governance (ESG) issues. This assessment helps determine which ESG factors are significant from both a financial and stakeholder perspective.

ESRS E1 to G1 (ESG disclosures): These standards focus on environmental, social and business conduct topics and require detailed reporting on ESG impacts, risks, and opportunities. The Double Materiality Assessment aids in identifying critical ESG issues that need to be disclosed under ESRS E1 toG1. It ensures that significant ESG factors affecting the business and those important to stakeholders are adequately reported via various key performance indicators (either quantitative or qualitative).

The importance for auditors and CSRD Assurance

The Double Materiality Assessment is crucial for auditors in supporting CSRD assurance and non-financial reporting requirements. Here are the critical factors:

Comprehensive reporting helps companies identify important sustainability issues. These issues can be financial or non-financial. They are significant for the business and its stakeholders.

Transparency and accountability - By providing a clear framework for identifying material topics, it enhances transparency and accountability in sustainability reporting. This is essential for auditors to verify the completeness and accuracy of the disclosures.

Stakeholder relevance - It helps ensure that the sustainability information disclosed is relevant and meaningful to stakeholders, including investors, customers, and regulators. Auditors can then review that the double materiality process has included stakeholders’ input and meets regulatory requirements.

Regulatory compliance -The Double Materiality Assessment supports compliance with the CSRD, which mandates comprehensive sustainability reporting. Auditors play a key role in ensuring that companies meet these regulatory requirements.

Risk management - Identifying material ESG issues through this assessment helps companies manage risks and opportunities more effectively. Auditors can then review the robustness of the company’s risk management processes concerning sustainability issues and the sustainability statements disclosures in that regard.

The importance of the Double Materiality Assessment cannot be overstated, as it is a cornerstone for ensuring that ESG reporting under ESRS is comprehensive, transparent, and aligned with stakeholder needs. This assessment will be pivotal for auditors in providing assurance on the accuracy and completeness of non-financial reports as required by the CSRD. This explains why the CSRD specifically requires the auditor to review the reporting process that has been put in place.

For businesses impacted by new non-financial reporting requirements in 2025, or those who, as third parties in the supply chain, the time to assess if your business is ESG ready is now.
 

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If you have any questions related to the Double Materiality Assessment, the Corporate Sustainability Reporting Directive (CSRD),  or any other ESG and sustainability matters, please contact our Global ESG services team.