The two lenses defined
Impact materiality asks how the company's activities, and its business relationships across the value chain, affect people and the environment, whether the effect is positive or negative, actual or potential. Financial materiality asks the reverse question: how sustainability matters, including risks and opportunities arising from the company's dependencies on natural and social resources, affect the company's own development, financial position and performance. A topic is treated as material under the ESRS if it meets either lens on its own, or both — which is why the assessment is called double materiality rather than a blended or averaged score.
Where the requirement comes from
ESRS 1, the general requirements standard under the CSRD, sets out double materiality as the basis for deciding which topical standards, and which specific disclosures within them, a company must report against. The concept draws on ground that existed before the ESRS: the impact lens overlaps closely with the materiality approach GRI has long used, while the financial lens overlaps with the enterprise-value focus that underpins the ISSB's IFRS S1 and S2. The ESRS combine both explicitly, which is one reason a company already reporting under GRI or preparing IFRS S2 disclosures does not start the double materiality process from nothing.
The assessment process
In practice, the process starts with mapping the company's own operations and value chain to identify where actual and potential impacts, risks and opportunities could arise. Stakeholder engagement — internal experts, affected communities, workers, investors and others — feeds into this mapping rather than replacing it. Each identified item is then assessed on the impact side for severity and likelihood, and on the financial side for the scale of potential financial effect and its likelihood, before the company sets its own thresholds for what counts as material given its circumstances. The result is a list of material topics that determines which ESRS topical standards, and which specific data points within them, the company must disclose against.
Documenting the process
ESRS 2 requires companies to disclose the process itself under disclosure requirement IRO-1, describing how impacts, risks and opportunities were identified and assessed, including the methodology, the scope of the value chain considered, and how stakeholders were involved. This means the materiality assessment is not only an internal planning exercise; the approach taken becomes part of the published sustainability statement and is itself subject to assurance.
Common challenges in practice
Value chain data availability is usually the first constraint: smaller suppliers may not hold the information a company needs to assess impacts several tiers removed from its own operations. Setting consistent thresholds is a second challenge, since the ESRS leave the specific cut-off for materiality to the reporting company's judgement rather than fixing a single test, which means the assessment must be documented clearly enough for an assurance provider and external readers to follow the reasoning. Maintaining consistency from one reporting year to the next, as the business, its value chain and stakeholder views evolve, is an ongoing task rather than a one-off exercise repeated unchanged.