ESRS Double Materiality Assessment: A Step-by-Step Guide for 2026

Double materiality is both a reporting decision and a governance judgement. An overbuilt methodology can consume months scoring thousands of theoretical IROs without improving the conclusion. An underbuilt methodology can miss severe impacts, rely on unsupported management views or produce a topic list that cannot be defended during assurance. The practical objective is not to maximise the number of scores; it is to identify material IROs and material information using appropriate evidence, criteria and review.

The revised ESRS expressly allow top-down, bottom-up or combined approaches, qualitative analysis where sufficient, and focus on areas where material IROs are likely. They do not prescribe a universal scoring model. Nevertheless, the outcome must be grounded in the criteria for impact and financial materiality and disclosed through ESRS 2 IRO-1 and IRO-2.

Figure 2. ESRS DMA process and the evidence register behind each conclusion.

ESRS require materiality criteria and appropriate qualitative considerations or quantitative thresholds, but they do not prescribe one numerical method. A qualitative conclusion may be sufficient, especially in a top-down assessment or where the facts clearly establish severity or financial exposure. Quantitative scoring can improve consistency and workflow, but it should not create false precision or override a severe impact that is evident from the context.

Evidence retained includes site withdrawals and basin context, community and regulator records, labour-intermediary contracts and worker interviews, the energy risk model, the threshold protocol, functional challenge notes and the approval paper. The example is illustrative; a real conclusion depends on facts and applicable requirements.

IRO-1 requires a concise, undertaking-specific description of the process and decision-making steps, including value-chain coverage, methodologies, inputs, assumptions, thresholds or qualitative considerations, how impacts were assessed by severity and likelihood, the use of due diligence and stakeholder/expert consultation, significant process changes and the latest update date. Boilerplate that merely repeats the ESRS criteria is not enough.

IRO-2 reports the outcome: concise descriptions of material IROs and their location in own operations or the value chain, changes from the prior period, the list and location of DRs complied with, supplementary information, specified heightened labour-risk information where applicable, and the table of EU-law datapoints. If climate change is assessed as non-material and ESRS E1 is omitted, the basis for that conclusion is specifically disclosed.

Starting with a questionnaire of all ESRS datapoints. Datapoints are not the unit of the DMA; material IROs and related topics are.

Using stakeholder voting to determine materiality. Stakeholder evidence informs the assessment, but management remains responsible for applying the criteria and approving the conclusion.

Reducing impact materiality to likelihood and financial materiality to a current P&L amount. Both lenses have broader criteria and time horizons.

Treating existing policies as evidence that a potential negative impact is no longer material before the policies and actions are implemented and reasonably effective.

Netting positive impacts against negative impacts or describing legal compliance and mitigation of connected harm as a positive impact.

Failing to retain evidence for non-material conclusions. Assurance and governance review need to understand why the topic did not enter the statement.

Keeping the IRO register separate from the disclosure matrix, leading to unexplained gaps or disclosures with no materiality basis.