Double materiality analysis

Double materiality analysis is a comprehensive approach to sustainability reporting that considers both the impact a company has on the environment and society and how environmental and social factors influence the company's long-term success. It recognises that businesses not only contribute to sustainability challenges but are also affected by them. It is the cornerstone of the European Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS).

What is double materiality?

Double materiality combines two perspectives:

1. Impact materiality: the company's effect on the world. This dimension focuses on how a company's operations, products and services affect the environment and society, including:

• Greenhouse gas emissions
• Water use and pollution
• Waste generation
• Human rights and working conditions

2. Financial materiality: the world's effect on the company. This dimension considers how environmental and social trends, such as climate change, resource scarcity or demographic shifts, can affect a company's business model, profitability and long-term viability. Examples include:

• Physical climate risks, such as extreme weather events
• Regulatory risks, such as changes in climate policy
• Market risks, such as shifts in consumer demand
• Reputational risks, such as negative public perception

Why double materiality analysis matters

• Strategic decision-making: helps companies identify and prioritise the most relevant sustainability issues, enabling more informed decisions.
• Risk and opportunity management: supports the identification of risks while capturing opportunities linked to environmental and social issues.
• Transparency and trust: provides stakeholders with comprehensive information on sustainability performance.
• Access to capital: investors increasingly weigh ESG factors, so a robust analysis can improve access to funding.
• Regulatory compliance: the CSRD and the ESRS require companies in scope to report using a double materiality approach.

Double materiality and the CSRD after the Omnibus

Double materiality remains central to EU sustainability reporting, but the scope of the CSRD has been narrowed. The Omnibus I simplification package (Directive (EU) 2026/470, published in February 2026 and in force since 18 March 2026, following the earlier stop-the-clock Directive (EU) 2025/794) raised the thresholds so that, broadly, the directive applies to large companies with more than 1,000 employees and more than 450 million euros in net turnover, with the first reports covering financial years starting on or after 1 January 2027. The revised ESRS were adopted on 3 July 2026: they cut more than 60% of the mandatory datapoints and make the materiality assessment more flexible through a top-down approach, applying to financial years starting on or after 1 January 2027, with early adoption possible for 2026. Many fewer companies are now required to report, although a wider group still performs the analysis to manage risk and meet value-chain expectations.

Double materiality and the carbon footprint

By considering both impact and financial materiality, companies can manage their carbon footprint holistically. This means they can:

• Identify and reduce greenhouse gas emissions across the value chain
• Assess and mitigate climate-related risks to operations and profitability
• Seize opportunities arising from the transition to a low-carbon economy
• Communicate climate performance transparently to stakeholders

Frameworks that inform double materiality

• Global Reporting Initiative (GRI)
• SASB Standards, now maintained by the ISSB
• IFRS S2, which absorbed the TCFD recommendations

These frameworks offer guidance on identifying, assessing and reporting material sustainability issues, including the carbon footprint. At Manglai we help companies run their double materiality analysis, measure their carbon footprint and prepare their sustainability reporting. Discover how Manglai can help you.