Double Materiality Under ESRS: Building a Materiality Assessment That Survives Assurance

ESRS ask one question in two directions: how does the undertaking affect people and the environment (impact materiality), and how do sustainability matters affect the undertaking's finances (financial materiality)? A matter that passes either test is material and drives the topical disclosures you report. Climate change is the exception to the usual opt-out: omitting ESRS E1 must be justified. For financial years from 1 January 2027, the simplified ESRS add a top-down route that lets you settle obvious topics at topic level.

First, fix the version you are reporting under

UK-headquartered groups often run assessments for several EU entities at once, so version control matters. Under the texts indexed in the CSRD & ESRS knowledge base:

• FY2024 and FY2025: ESRS set 1 (Delegated Regulation (EU) 2023/2772). From FY2025 it applies with the phase-in changes of Delegated Regulation (EU) 2025/1416.
• FY2026: a choice under Article 2 of Delegated Regulation (EU) 2026/1563. You may use set 1, the simplified ESRS, or set 1 with eight named reliefs, and you must state which version you applied.
• FY2027 onwards: the simplified ESRS, which enter into force on 10 November 2026.

Only EU entities that remain in CSRD scope need this exercise. From FY2027, that means exceeding both EUR 450 million of net turnover and 1,000 employees on average. Member States must transpose the Omnibus I scope changes by 19 March 2027.

Impact materiality and financial materiality, defined

Two rules from set 1 are worth committing to memory. For a potential human rights impact, severity takes precedence over likelihood. And impacts are captured by the impact perspective "irrespective of whether or not they are financially material" (ESRS 1, paragraph 38).

Running the assessment: a practical sequence

1. Start from the ESRS topic list in the appendix to ESRS 1, and note any entity-specific topics.
2. Draw on your due diligence. ESRS 1 links the impact assessment to the due diligence process described in the UN Guiding Principles and the OECD Guidelines. Engagement with affected stakeholders is central.
3. Prioritise where impacts are likely, by activity, business relationship and geography, rather than surveying every supplier.
4. Score or reason impacts and risks against the criteria above, using thresholds you can explain.
5. Document the process. Under ESRS 2, you explain how you determined material information, including thresholds, and you describe the process to identify and assess impacts, risks and opportunities (IRO-1).
6. Map outcomes to disclosures. Report the topical disclosure requirements for each material matter. In the ESRS 2 table of datapoints derived from other EU legislation, mark any omitted datapoint as "not material".

Knock-on effects between topics

ESRS set 1 asks you to look for situations in which action on one matter creates material impacts or risks elsewhere (ESRS 1, section 3.6). Its own examples are a decarbonisation plan that abandons certain products, with material negative impacts on the workforce and redundancy-payment risk, and an automotive supplier switching to e-vehicle parts, which may strand assets used for conventional vehicles. In such cases, disclose the impact or risk alongside the action that generates it, cross-referenced to the topic it belongs to.

The simplified ESRS also restate when information is material. It is material when omitting, misstating or obscuring it could reasonably be expected to influence the decisions of primary users of financial reports, or of other users of the sustainability statement (new ESRS 1, paragraph 23). That second filter applies after you have identified your material topics.

Leaving out ESRS E1: why climate is different

Suppose a professional-services subsidiary concludes that biodiversity and climate change are both not material. The two conclusions are not treated alike:

• Biodiversity (ESRS E4): under set 1, the undertaking "may" give a brief explanation of its conclusion (ESRS 2, paragraph 58).
• Climate change (ESRS E1), FY2024-FY2026 under set 1: it "shall" give a detailed explanation, including a forward-looking analysis of the conditions that could make climate change material in future (ESRS 1, paragraph 32; ESRS 2, paragraph 57).
• Climate change, FY2027 onwards under the simplified ESRS: IRO-2 paragraph 37(b) requires disclosure of "the basis for concluding that climate change is not material".

Climate change remains the only topic singled out in this way, so an assurance provider will expect to see the reasoning.

The simplified ESRS: what changes in the method

Delegated Regulation (EU) 2026/1563 rewrites ESRS 1. Its recitals list among the aims "providing clear instructions on how to apply the materiality principle". The main changes for the assessment are:

• Top-down (paragraph 27): conclude on a topic or sub-topic from an analysis of strategy, business model, sectors, geographies and value-chain features. Perform a specific assessment only where the result is not evident. AR 9 notes that this generally avoids assessing individual impacts, risks and opportunities.
• Bottom-up (paragraph 28): still allowed, and you can mix approaches by topic (AR 10).
• Proportionate inputs (paragraphs 32-33): use reasonable and supportable information available without undue cost or effort. You need not assess every possible impact, risk or opportunity, and you may use regional or sector data for the value chain.
• Qualitative may suffice (AR 13): quantitative scoring is not necessarily required.
• Materiality as a filter (paragraph 24): immaterial ESRS information must not be disclosed, except supplementary information that you clearly identify.

If you stay on set 1 for FY2026, the top-down approach and paragraphs 32-33 are among the reliefs you may still apply under Article 2(1)(b).

Pitfalls that reviewers flag

• Ranking topics only by financial effect and losing the impact perspective.
• Offsetting positive impacts against negative ones. The simplified ESRS 1 (paragraph 44) requires positive impacts to be assessed on their own.
• Crediting mitigation plans that have not yet been implemented (simplified ESRS 1, paragraph 43(b)).
• Not revisiting the assessment after an acquisition, a disposal or a change in business model. Paragraph 34 requires a check at each reporting date.

Ask the base a concrete question, such as "When exactly is a sustainability matter considered material from the impact perspective, as opposed to the financial perspective, under ESRS 1?" Answers cite ESRS set 1 or the simplified ESRS on EUR-Lex.

This guide summarises the EU texts indexed on 5 October 2026. It is not a substitute for professional judgement on your own assessment.