In today's evolving regulatory landscape, double materiality assessments have become a cornerstone of effective sustainability strategy and reporting. They are an integral component in determining the scope of reporting under the Corporate Sustainability Reporting Directive (CSRD) and its accompanying standards, the European Sustainability Reporting Standards (ESRS). But the role of double materiality extends beyond just compliance. This holistic assessment helps companies identify and prioritize the most relevant social, economic and environmental impacts, risks and opportunities and ultimately contributes to the development of a robust sustainability roadmap.

The two dimensions of double materiality

At its core, double materiality evaluates two dimensions of a company's sustainability impacts:

• Impact materiality (“inside-out” approach) focuses on identifying, assessing and prioritizing the impacts an organization has or could have on the economy, environment and people as a result of its activities or business relationships.
• Financial materiality (“outside-in” approach) focuses on identifying and assessing the sustainability issues that generate (or may generate) risks and opportunities which could financially affect the organization.

By taking both perspectives into account, double materiality enables a comprehensive understanding of sustainability impacts—both on a business and as a business. This dual perspective contributes to better decision making and helps organizations better align their sustainability targets and business goals.

Conducting double materiality assessments

Successful implementation of double materiality assessments into business practices demands careful planning and ongoing effort. These are essential steps for getting started:

Balancing qualitative and quantitative information

For firms seeking quick insights with limited data, beginning with a qualitative analysis to determine material sustainability impacts, risks and opportunities is advantageous and helps prioritize efforts. This may include insights from stakeholder engagement activities such as surveys, workshops, or interviews. 

On the other hand, organizations can also use quantitative metrics, research findings and tangible evidence to identify and assess material sustainability matters. This quantitative approach is more suitable for companies with robust data systems that require actionable, data-driven insights.

The balance between qualitative and quantitative information is often a source of uncertainty. Regulatory requirements, particularly under the CSRD/ESRS, emphasize evidence-based decision making. However, they leave organizations the flexibility to use judgment when obtaining quantitative data isn’t feasible. Organizations should set clear context when analyzing qualitative data, ensuring it complements any quantitative metrics gathered. By enriching quantitative data with qualitative insights, companies can create a comprehensive understanding of their material sustainability issues and set priorities.

Integration of value chain information

Value chain complexity presents a significant hurdle when conducting double materiality assessments. With extended networks of suppliers, distributors and other stakeholders, it’s difficult to pinpoint areas in the value chain where risks, impacts or opportunities are most pronounced.

Addressing this challenge requires a more segmented approach to value chain analysis. The first step is to differentiate between upstream, downstream and the company’s own operations. Next, companies can target specific tiers of their supply chain, starting with critical segments or high-risk suppliers. Using granular mapping and ensuring stakeholder involvement can help surface actionable insights. For instance, implementing supplier engagement incentives tied to sustainability performance can drive better collaboration and data sharing.

Conducting gap analysis alongside double materiality assessments

Best practices in sustainability reporting recommend conducting a gap analysis of a company’s current sustainability maturity to the requirements of the CSRD alongside a double materiality assessment. This approach is crucial for identifying and addressing material disclosure gaps early, enabling companies to refine focus areas and allocate resources more effectively.

Going beyond compliance

Businesses today face mounting pressure to go beyond compliance and demonstrate leadership in sustainability. By adopting double materiality assessments, organizations position themselves for long-term success in an increasingly sustainable economy.

This process not only enhances their reporting but also builds trust among stakeholders, strengthens organizational resilience and catalyzes meaningful progress toward global environmental and social goals. The time to act is now. Companies that embed double materiality into their sustainability strategies will stand out as forward-thinking leaders—prepared to meet the current and upcoming regulatory requirements and shape the opportunities of tomorrow.

If you’d like to hear more about Sphera’s recommended approach, please join us for the webinar “Double materiality assessment for CSRD: expert insights & best practices” on December 12th.

The information provided in this article is for general information purposes only, may not be updated in real time and does not constitute legal advice. Please consult with your legal and other advisors to discuss your particular needs and circumstances.