Double Materiality Under ESRS: How to Decide What Goes Into Your Sustainability Statement

Under ESRS, a sustainability matter is material if it meets the test for impact materiality, financial materiality, or both. The outcome of that assessment decides which topical disclosures go into your sustainability statement. Climate change gets special treatment: if you omit ESRS E1, you must explain why. From financial years beginning on or after 1 January 2027 (or FY2026 by choice), the simplified ESRS let you reach conclusions "top-down" from your business model, sector and geographies, instead of scoring every impact, risk and opportunity.

Which rulebook applies to your reporting year

Before building a materiality matrix, pin down the version of the standards. The texts in the CSRD & ESRS knowledge base set out three periods:

For US groups, the reporting entity is typically an EU subsidiary or EU sub-holding that remains in CSRD scope. From FY2027, that means exceeding both EUR 450 million of net turnover and 1,000 employees on average.

The two dimensions, as ESRS define them

ESRS set 1 states it directly: "Double materiality has two dimensions, namely: impact materiality and financial materiality". Unless specified otherwise, "material" in ESRS means double materiality (ESRS 1, paragraph 37).

Impact materiality

A matter is material from an impact perspective when it pertains to the undertaking's material actual or potential, positive or negative impacts on people or the environment over the short, medium or long term. Those impacts include impacts from your own operations and your upstream and downstream value chain, through products, services and business relationships. Business relationships are not limited to direct contracts (set 1, paragraph 43).

• Actual negative impacts: materiality depends on severity.
• Potential negative impacts: severity and likelihood. For potential human rights impacts, severity takes precedence over likelihood.
• Severity combines scale, scope and irremediable character.
• Positive impacts: scale and scope for actual impacts; scale, scope and likelihood for potential ones.

Financial materiality

A matter is financially material if it triggers, or could reasonably be expected to trigger, material financial effects. That is the case when it affects development, financial position, financial performance, cash flows, access to finance or cost of capital over the short, medium or long term (set 1, paragraph 49). The scope is wider than financial-statement materiality: it covers risks and opportunities from business relationships beyond the consolidation perimeter, and from dependencies on natural, human and social resources. Materiality of a risk or opportunity combines likelihood and potential magnitude of the financial effects.

A step-by-step assessment for a first-time preparer

1. Map the list of topics. Start from the topics, sub-topics and sub-sub-topics listed in the appendix to ESRS 1, then add entity-specific topics that the ESRS do not cover.
2. Focus on where impacts are likely. Look at activities, business relationships, geographies and other factors where impacts, risks and opportunities are likely to arise (set 1, paragraph 39). You do not need information on every actor in your value chain.
3. Assess impacts. Apply severity, likelihood and, for positive impacts, scale and scope. Use due diligence results and engagement with affected stakeholders.
4. Assess risks and opportunities. Combine likelihood and magnitude, including those arising from dependencies.
5. Set and document thresholds. ESRS 1 requires appropriate quantitative and/or qualitative thresholds (set 1, paragraph 42). Under ESRS 2, you must explain how you determined material information, including the thresholds you used.
6. Translate topics into disclosures. For each material matter, report the topical disclosure requirements. For metrics, you may omit a datapoint that you assess as not material if it is not needed for the objective of the disclosure requirement.
7. Complete the index. List the disclosure requirements you complied with, and add the table of datapoints that derive from other EU legislation, marking any you omit as "not material".

Under set 1, ESRS 2 General Disclosures always apply, whatever the outcome of your assessment (set 1, paragraph 29). The simplified ESRS keep this logic: paragraph 29(a) requires you to apply ESRS 2, and AR 12 describes its requirements as likely to result in material information for all undertakings.

Can you exclude ESRS E1 like any other topic?

Not in the same way. Under ESRS set 1 (FY2024-FY2026), if you conclude that climate change is not material and omit all of ESRS E1, you must give a detailed explanation of that conclusion. That explanation must include a forward-looking analysis of the conditions that could make climate change material in the future (ESRS 1, paragraph 32; ESRS 2, paragraph 57). For any other topic, such as biodiversity, a brief explanation is optional: the text says you "may" briefly explain (ESRS 2, paragraph 58).

Under the simplified ESRS (FY2027 onward), IRO-2 paragraph 37(b) requires you to disclose "the basis for concluding that climate change is not material" if you omit all of ESRS E1. Climate change is still the only topic named this way, so its exclusion still has to be justified on the record.

What the 2026 simplified ESRS change

• Top-down approach (paragraph 27). You may conclude on a topic's materiality "without further assessment" based on an analysis of your strategy, business model, sectors, geographies and value-chain features. Where the answer is not evident, you assess the specific impact, risk or opportunity.
• Bottom-up remains available (paragraph 28), and you may combine the approaches topic by topic (AR 10).
• Proportionate evidence (paragraphs 32-33). Use reasonable and supportable information available without undue cost or effort. You are not required to assess every possible impact, risk or opportunity. Value-chain assessments can rely on regional or sector averages rather than direct supplier input, and quantitative scoring is not necessarily required (AR 13).
• No immaterial padding (paragraph 24). You must not disclose ESRS information that is not material, except supplementary information that you clearly label (section 8.2).
• Periodic review (paragraph 34). At each reporting date, consider whether significant changes require you to update the assessment.

Undertakings that stay on set 1 for FY2026 can still use the top-down approach and paragraphs 32-33 as reliefs, under Article 2(1)(b) of Delegated Regulation (EU) 2026/1563. The recitals of Omnibus I explain the policy aim: clear materiality instructions that reduce the risk of assurance providers pushing undertakings to report unnecessary information.

Frequent mistakes

• Netting positive against negative impacts. The simplified ESRS 1 (paragraph 44) says positive impacts are assessed on their own, and that compliance with law is not a positive impact.
• Treating an impact as immaterial because it has no financial effect.
• Dropping E1 with a one-line note.
• Counting policies you have not yet implemented when assessing potential impacts (simplified ESRS 1, paragraph 43(b)).

You can test your reasoning by asking the base, for example: "If we conclude that climate change is not material for our business, can we leave out ESRS E1 entirely the same way we would for a topic like biodiversity?" Answers quote ESRS set 1 or the simplified ESRS, depending on the year.

This guide reflects the official texts indexed on 5 October 2026. It explains the rules and is not advice on your specific assessment.