Understanding the CSRD Double Materiality Assessment Process

Understanding the CSRD Double Materiality Assessment Process
  • January 31, 2024

Sustainability reporting is becoming increasingly crucial for organisations, and will soon become a legal requirement for many. The Corporate Sustainability Reporting Directive (CSRD) has emerged as a fundamental framework that demands increased transparency and accountability from businesses and aims at driving sustainable change across the EU.

CSRD introduces an innovative, critical element: the Double Materiality Assessment (DMA), a mandatory exercise for companies to identify which sustainability matters are most material to the organisation and its stakeholders by evaluating their impact on environmental and social factors (inside-out perspective), while also considering how these factors influence the organisation (outside-in perspective).

2 colleagues researching sustainability measures

The DMA not only determines the scope of the organisation’s sustainability reporting but also enables an efficient allocation of the resources needed to achieve CSRD compliance and provides indispensable insights for shaping company strategy. 

Along with CSRD, the European Commission released a delegated regulation that defines the approach and rules to be observed and followed by companies that are subject to the directive’s sustainability reporting requirement, called the European Sustainability Reporting Standards (ESRS). The ESRSs mandate that a DMA is carried out, as it allows the organisation to identify and prioritise sustainability issues that are significant to both the organisation and its stakeholders.

PwC has devised a seven-step process for the execution of a DMA:

Step 1

Identify and engage stakeholders

Stakeholders are central to a DMA with the ESRSs introducing new considerations with regards to the groups of stakeholders to involve. 

The objective of stakeholder engagement is to understand how people may be impacted by the organisation and to get input and feedback on material sustainability matters. Through stakeholder engagement, organisations might identify new sustainability matters to be considered in their materiality assessment. Qualitative and quantitative stakeholder input can also inform the assessment of impacts, risks and opportunities in subsequent steps.

Under CSRD the use of stakeholder input has changed, now requesting them to identify the organisation’s most significant impact on people and the environment, and the most significant sustainability risks and opportunities for the organisation. This is challenging because not all stakeholders will be able to compare and assess a broad range of ESG topics from these two perspectives. 

It, therefore, helps to do part of the assessment with internal and external experts on the various sustainability matters to gain insight into the impact of the organisation, but also to ensure stakeholder dialogue can focus on what the organisation can do better. Stakeholder dialogue should not only be used to collect input for the materiality assessment but should allow for time to discuss the strategy, policies and action plans for these topics.

Step 2

Draw up a list of potentially relevant sustainability matters

The ESRSs provide a list of sector-agnostic sustainability matters that organisations should consider in their materiality assessment. Organisations will also be required to identify entity-specific sustainability matters that are not explicitly mentioned in the ESRS. 

Organisations need to consider their applicable operating sectors, geographical areas of operation, as well as their value chain to identify potentially relevant sustainability matters. Previous materiality assessments, internal documentation (e.g. impact and risk assessments), external documentation (e.g. sector reports, benchmarks and ESG ratings), and insights from stakeholder engagement are all good points of reference to start from.

By working with internal specialists and using internal resources, organisations can avoid being overwhelmed with a huge list of topics and can create an actionable short list of topics to be considered in the next steps of the assessment.

At a later stage, organisations will also have to consider sector-specific sustainability matters based on the sector-specific ESRS that are still in development.

Step 3

Define impacts, risks and opportunities

In the process of determining whether the sustainability matters as identified in the previous step are indeed material (and should therefore be disclosed in the sustainability statements), organisations must next define the impacts the organisation creates and the risks and opportunities they present.

This can be a challenging exercise. Impacts related to any sustainability matter on people and the environment can be positive or negative, actual, or potential, and interconnected with the impacts from other topics. Understanding the timeline of these Impacts, risks, and opportunities is also important, in that they can occur in the short, medium or long term and pertain to (future) events and activities across the value chain.

In our experience, it is crucial to tap into all the relevant units of an organisation to make these assessments as rich as possible and also to avoid duplication of effort. Since these assessments need to cover the entire value chain, organisations are likely to need to consult stakeholders and topical experts along the way.

Step 4

Assess impacts

Once sustainability matters have been described in terms of impacts, risks and opportunities, the next step is to quantify them. 

The level of detail involved in this step should be applied at a granular level, as defined in the ESRSs. This detailed assessment helps to later determine which disclosure requirements and data points are material. Moreover, organisations need to disclose how they manage the impacts, risks and opportunities connected to each topic, clarifying potential strategic implications.

Input for these quantitative assessments can be obtained from engaging with stakeholders and experts, both internally and externally, through interviews, surveys, and workshops. In addition to this bottom-up approach, a holistic, top-down review of the outcomes is advised to address a critical challenge organisations face when assessing impacts: how to compare impacts that are completely different.

Step 5

Assess financial opportunities and risks

The next step is to assess the financial effects that have not yet been incorporated into the financial statements. CSRD asks organisations to look at financial effects from two perspectives: to what extent can you continue to use your current resources and to what extent can you maintain your existing relationships?

Again, this may be a challenging exercise since it requires an understanding of events in the value chain, as well as insight into sustainability developments that can affect business processes. 

Sustainability teams can help identify events that might trigger a risk or opportunity, for example, new regulations, increased public scrutiny or changing stakeholder expectations regarding a certain topic. In contrast, risk experts can support and ensure alignment with the broader enterprise risk management approach, and financial experts can help to assess the magnitude of the financial effect, for example, an increase in R&D expenses, loss of revenue or increase in operational costs. We suggest bringing these experts together in a workshop so they can challenge each other on the relative score of each topic and how that fits into the bigger picture.

Step 6

Draw up the materiality overview

Once all impacts, risks and opportunities have been assessed, an organisation can create separate ranked lists for negative impacts, positive impacts, risks and opportunities. By applying a threshold or cut-off point, these can then be split into material and not material impacts, risks and opportunities. 

An organisation should include all significant impacts, risks and opportunities, however, if too many IROs are included, the core issues that are most critical to the organisation may be overshadowed. Therefore, it is advised to engage in thoughtful discussions with stakeholders, senior management and specialists to pinpoint and prioritise the most material matters that the organisation can focus on from a strategic perspective.

Step 7

Strategic implications

For each sustainability matter that has been identified as material, CSRD requires that companies disclose exactly what measures are being put in place to manage environmental and societal impacts. As a result, in time, companies should also disclose not only the metrics and targets they have set for each sustainability measure but also the policies and action plans they will implement to achieve their goals. 

These requirements lead to an increasing need to expressly consider sustainability impacts and to take a longer-term perspective when developing corporate strategy. The disclosure of action plans also requires companies to credibly formulate how they will ensure sustainability matters are addressed in the organisation and which parts of the organisation need to be involved.

Practical tips & takeaways


A double materiality assessment is the essential first step towards CSRD compliance that is needed so that organisations can focus their subsequent efforts on sustainability matters that are most relevant to them and their stakeholders.

Involve internal topic experts to help define and assess impacts, risks and opportunities. Input is likely to be needed from Sustainability, Strategy, Finance, Risk, HR, and Legal teams.

Translate ESRS criteria (for example on how to assess scale, scope, likelihood and remediability) into tailored assessment guidance to ensure experts assess impacts, risks and opportunities consistently.

Test your material topics with stakeholders, and leave room for challenge and a discussion on strategic considerations in your dialogue with stakeholders.

Go granular to gain new strategic insights. Your assessment should also enable you to identify disclosure requirements and data points relevant to you.

Ensure that outcomes from the double materiality assessment are shared across the organisation, endorsed by the Board and embedded in strategic decision-making.

Document all assumptions and steps taken in the process, since this process will also be subject to external assurance.

Contact us

Norbert Paul Vella

Norbert Paul Vella

Assurance Partner, PwC Malta

Tel: +356 2564 7263

Claudine Attard

Claudine Attard

Director, Advisory, PwC Malta

Tel: +356 9947 6321

Carl  Zammit la Rosa

Carl Zammit la Rosa

Manager, Advisory, PwC Malta

Tel: +356 2564 4113

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