Double materiality assessments (DMAs) are integral to determining the scope of reporting requirements under the Corporate Sustainability Reporting Directive (CSRD). They provide a multi-dimensional view of a company’s social, economic, and environmental impacts, risks, and opportunities (IROs).
Beyond compliance, however, DMAs play a strategic role. A systematic approach helps companies identify and prioritize the most significant IROs, forming the foundation for effective sustainability strategies.
Finances and impact: The essence of double materiality
At their core, DMAs consist of analyses, expert collaboration and validation. They are founded on the concept of double materiality, which is comprised of the following two dimensions:
- 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 caused by its activities or business relationships.
- Financial materiality (“outside-in” approach) focuses on identifying and assessing the sustainability aspects that generate — or may generate — risks and opportunities which could financially affect the organization itself.
By taking both perspectives into account, double materiality enables a comprehensive understanding of a company’s sustainability effects — both on the business and by the business. And it’s why the CSRD, and the accompanying European Sustainability Reporting Standards (ESRS), places such a large emphasis on this assessment.
Shining a light: The role of DMAs in CSRD compliance
The CSRD represents a major shift in sustainability reporting practices, demanding deeper insights into sustainability topics than ever before. DMAs initiate the CSRD preparation process and help determine the scope of the CSRD report.
The DMA begins with a baseline assessment of a company’s activities and business relationships, sustainability challenges and other variables, and ends with the alignment of DMA scores against CSRD thresholds. The process can be exhaustive and time-consuming, especially when departmental silos slow collaboration, value chains form complex cross-border networks, and data availability is minimal.
But DMAs don’t have to be a drag on operations, even for sprawling organizations. With a defined process and informed best practices, companies can boost efficiency, optimize their data collection and get the most out of compliance.
Optimizing your efforts: Best practices for double materiality assessments
Successfully transforming DMAs into sustainable business practices demands careful planning and ongoing effort, pre- and post-assessment. By following these best practices, any organization can get started:
- Balance a qualitative and quantitative approach
The balance between qualitative and quantitative information is often a source of uncertainty in the DMA process. The CSRD’s requirements emphasize evidence-based decision-making. However, it also leaves organizations the flexibility to use their own judgment when obtaining quantitative data isn’t feasible. How can they strike the right balance between qualitative and quantitative analysis?
For firms seeking quick insights with limited data, it is best to begin with a qualitative analysis to determine material sustainability impacts, risks and opportunities. This may include gathering insights from stakeholders through 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.
Organizations should set clear guidelines when analyzing qualitative data to ensure it complements any quantitative metrics they gather. By enriching quantitative data with qualitative insights, companies can better understand their material sustainability topics — and prioritize their efforts.
- Integrate value chain information
Value chain complexity presents a significant hurdle when conducting double materiality assessments. With extended networks of suppliers, distributors and other stakeholders, organizations can find it difficult to pinpoint areas where IROs are most pronounced. In other words, where the impacts are higher, the risks greater, and the opportunities more rewarding.
Addressing this challenge requires segmented value chain analysis. The first step is to differentiate between upstream and downstream activities and the company’s own operations. Next, organizations should target specific tiers of their supply chain, starting with critical segments or high-risk suppliers. Using granular mapping technology and ensuring stakeholder involvement can help surface actionable insights.
- Conduct a gap analysis alongside double materiality
DMAs don’t operate in a vacuum. These assessments are best paired with a gap analysis, measuring a company’s current sustainability maturity against the CSRD’s requirements. This approach can maximize the value of the compliance process, as it identifies and addresses material disclosure gaps early — enabling companies to refine focus areas and allocate resources more effectively.
Beyond compliance: Assessments can translate to smarter decisions
The double materiality assessment’s dual perspective isn’t just busywork for busy professionals. It contributes to better decision-making, helping organizations align their sustainability targets with business goals. Today’s businesses face mounting pressure from investors and the public to go beyond checking a compliance box and demonstrate true sustainability leadership. By leveraging expert best practices to streamline DMAs, organizations can best prepare for CSRD — and position themselves for long-term success in an increasingly sustainable economy.
The DMA process not only enhances the quality of reporting. Its transparency and insights build trust among stakeholders, surface organizational inefficiencies, strengthen long-term resilience and catalyze meaningful progress toward global environmental and social goals. Unpack Sphera’s insights on DMAs in our eBook, A formula for CSRD success: From double materiality to climate transition plan and reporting
With support from Sphera Sustainability Consultants, organizations gain the CSRD expertise and practical guidance they need to remove frustration, enhance accuracy and improve insights at every stage in the DMA process. Companies that embed robust double materiality into their big-picture strategy will stand out as forward-thinking leaders — prepared to meet current and upcoming regulatory requirements, secure CSRD compliance and shape the opportunities of tomorrow.
Get in touch with our experts today to get started with your DMA.
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.
