Top-down (¶27)
Conclude from strategy, business model, sectors, geographies and value chain; assess specifically only where the answer is not evident.
May be qualitative (AR 19).Materiality · the ESRS procedure
Double materiality assessment: the steps, the method and who can ask for one
A double materiality assessment is how an ESRS reporter decides what goes into its sustainability statement: it finds the topics where impacts, risks or opportunities are material, then reports only that information.
The revised ESRS 1, published as Delegated Regulation (EU) 2026/1563, sets the method in Chapter 3, and it is shorter and stricter than the 2023 text.
Nothing in UK law asks a UK company to run one, so if you have been asked, start with who is asking and whether they may require it at all.
Not a rule, a request
You are not regulated. You are being asked.
A UK company never runs a double materiality assessment because UK law told it to.
It runs one because an EU parent, EU customer or EU lender asked, usually because that entity is inside the CSRD and is filling its own ESRS datapoints.
Read who can ask, and on what basis
A request down a value chain is not a legal obligation on you, so before scoping any work establish who is asking, under which regime, for which reporting entity and for which financial year.
The exception is a UK group whose own EU subsidiary is in scope: that subsidiary runs the assessment, and CSRD in the UK sets out when that happens.
The concept itself — the two lenses and where EU law writes them down — is on double materiality, and the framework-neutral process, for a UK SRS or GRI report, is on the materiality assessment guide.
| Who asks | Why | What binds you |
|---|---|---|
| EU parent | Consolidating your data into its group ESRS statement | Your group’s own arrangements |
| EU customer | Its own value-chain and Scope 3 datapoints | Nothing, beyond contract; the cap limits CSRD-purpose requests |
| EU lender | Sustainable-finance due diligence | The loan terms; outside the cap |
| Investor | Portfolio ESG data collection | Commercial, not statutory |
Who asks, and whyExplore
Who asks, and why
EU parent
Consolidating your data into its group ESRS statement; your group’s own arrangements bind you.
Who asks, and why
EU customer
Its own value-chain datapoints; nothing binds you beyond contract, and the cap limits CSRD-purpose requests.
Who asks, and why
EU lender
Sustainable-finance due diligence; the loan terms bind you, and the request sits outside the cap.
The value-chain cap
What an EU customer can actually require
Since 18 March 2026, Directive (EU) 2026/470 has protected every value-chain undertaking that does not exceed an average of 1,000 employees in the preceding financial year.
A CSRD reporter may not require more sustainability information from it, for its CSRD reporting, than the voluntary standard specifies.
The requester can still ask for more, but must say which part exceeds the cap and tell you that you have a statutory right to decline.
Read the cap’s provisions and limits
A reporter that reports without taking over-cap information from you is “deemed to have complied” with its value-chain obligation, under Article 19a(3), fourth subparagraph, point (d).
The cap is narrower than the whole voluntary standard: Delegated Regulation (EU) 2026/1560 limits it to the datapoints in its Annex II, and those apply from financial years beginning on or after 1 January 2027.
The Commission’s note of 6 May 2026 confirms the cap applies only to requests for CSRD reporting, not to commercial or contractual ones.
A full double materiality assessment is well beyond the voluntary standard, and the VSME guide sets out what the capped questions actually are.
Value-chain cap · can they require this?
Answer the four questions
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Rules: Directive 2013/34/EU Art 19a(3) and 29a(3) as amended by Directive (EU) 2026/470; Delegated Regulation (EU) 2026/1560 Arts 3–4.
A provisional reading, not legal advice.
Who is actually in scope
Omnibus I narrowed the field sharply
Mandatory CSRD scope is now undertakings that exceed both €450 million of net turnover and an average of 1,000 employees, for financial years beginning on or after 1 January 2027.
Member States may exempt undertakings below €450 million or 1,000 employees for financial years starting in 2025 and 2026.
Read the scope detail
A non-EU group is reached separately under Article 40a, on EU turnover alone, from financial year 2028, and its draft standard asks for the impact half of the assessment only.
The CSRD after Omnibus I page sets old and new scope side by side.
Scope and materiality are different questions: the scope test decides whether an undertaking reports, and the assessment decides what it reports.
Scope is a separate testExplore
Scope is a separate test
From FY2027
Undertakings exceeding both €450 million net turnover and an average of 1,000 employees.
Scope is a separate test
FY2025 and FY2026
Member States may exempt wave-one undertakings that fall below the new test.
Scope is a separate test
Non-EU groups
Article 40a, on EU turnover, from financial year 2028; the draft standard looks at impacts only.
Scope is a separate test
Materiality
Decides what an in-scope undertaking reports, never whether it reports.
Which ESRS for which year
The FY2026 choice, and why it changes the assessment
The revised ESRS apply to financial years beginning on or after 1 January 2027, and for a financial year starting in 2026 an undertaking has three options.
Whichever it picks, Article 2(2) of Delegated Regulation (EU) 2026/1563 requires it to state clearly in its sustainability statement which version it applied.
- 31 July 202301
First ESRS adopted
Delegated Regulation (EU) 2023/2772; the 2023 numbering puts severity at ESRS 1 ¶45. - 3 July 202602
Revised ESRS adopted
The Commission adopts the simplified standards, replacing Annex I in full. - 21 September 202603
Published in the Official Journal
Delegated Regulation (EU) 2026/1563; it enters into force on 10 November 2026. - FY202604
Three options, and say which
The 2023 ESRS as amended by DR (EU) 2025/1416; those standards with eight reliefs including top-down materiality; or the revised ESRS in full. - FY2027 onwards05
Revised ESRS, no choice
Financial years beginning on or after 1 January 2027 apply the revised ESRS; first reports follow in 2028.
Read the eight FY2026 reliefs
The hybrid option takes the 2023 standards with eight reliefs from the revised ESRS 1: ¶27 top-down materiality, ¶¶32–33 undue cost and effort and the value-chain limitation, ¶¶74–75 acquisitions and disposals, ¶90 non-significant activities, ¶91 partial value-chain scope, ¶92 joint operations, ¶106 Taxonomy disclosures in a separate appendix and ¶110 the executive summary.
Two of the eight, the top-down route and the value-chain limitation, change how the assessment itself is run.
Paragraph numbers moved in the revision, so a working paper should always say which ESRS 1 it cites.
Top-down or bottom-up
Two routes into the assessment, and you may use both
The revised ESRS 1 lets an undertaking reach a topic-level conclusion without scoring every impact, which is the largest practical change from the 2023 text.
Under ¶27 it may derive a conclusion “without further assessment” from its strategy and business model, including its sectors, geographies and value chain.
Read the top-down and bottom-up rules
Where the materiality of one or more impacts, risks or opportunities is not evident from that analysis, the undertaking “shall perform a specific assessment” of them.
AR 9 adds that a top-down approach “in general” does not require assessment at the level of individual impacts, risks and opportunities, though a more granular look may be needed where it could change the conclusion.
Bottom-up, under ¶28, relies on an assessment conducted at the level of individual impacts, risks and opportunities.
AR 10 allows a top-down approach for some topics and a bottom-up analysis for others, which suits a group with one dominant activity and several smaller ones.
The top-down route is a simplification of method, not an exemption from the criteria: ¶27 opens “without prejudice to the criteria in Chapters 3.2.1 and 3.2.2”.
Because the assurance opinion covers the process, a top-down conclusion needs the strategy and business-model analysis behind it on file.
Each topic or sub-topic
Bottom-up (¶28)
Assess individual impacts, risks and opportunities and aggregate the results to topics.
Qualitative or quantitative (AR 19).The method
How to run a double materiality assessment under the revised ESRS
Nine steps follow Chapter 3 of the revised ESRS 1, and the paragraph numbers below are the revised ones.
The standard itself frames them as two stages: identify the topics related to material impacts, risks or opportunities, then determine the information to report on each (¶25).
Read all nine steps with their paragraphs
| # | Step | What the standard says |
|---|---|---|
| 1 | Choose the route for each topic | Top-down (¶27): conclude from an analysis of strategy and business model, and assess specifically only where the answer is not evident. Bottom-up (¶28): assess individual impacts, risks and opportunities. The two can be combined topic by topic (AR 10). |
| 2 | Focus where impacts are likely | Use reasonable and supportable information available without undue cost or effort (¶32(a)). The undertaking need not assess every possibility across its value chain, but focuses where material matters are likely (¶32(b)). |
| 3 | Use regional and sector data for the value chain | The value chain can be assessed without direct input from suppliers, using average regional data, sector data or generally available information (¶33). |
| 4 | Identify impacts first | “In general, the starting point is the assessment of impacts” (¶36); then add risks and opportunities that do not arise from impacts, such as physical climate risk. |
| 5 | Score impact materiality | Actual negative impacts on severity; potential negative impacts on severity and likelihood. Severity is scale, scope and irremediable character (¶40). Positive impacts on scale, scope and, if potential, likelihood (¶41). |
| 6 | Score financial materiality | Risks and opportunities on “a combination of the likelihood of occurrence and the potential magnitude of the financial effects” (¶50), arising from material impacts, dependencies, or other factors such as climate hazards and regulatory change (¶48). |
| 7 | Set and record thresholds | Qualitative considerations and quantitative thresholds (¶37). “Quantitative scoring is not necessarily required”; a qualitative analysis may be enough (AR 13). |
| 8 | Decide what to report | ESRS 2 always; for each material topic the GDR-P, GDR-A, GDR-M and GDR-T minimums and the topical disclosures (¶29); only the material sub-topics (¶30). Information that is not material “shall not” be disclosed, except supplementary information under §8.2 (¶24). |
| 9 | Revisit each year | At each reporting date, consider whether significant changes affect the earlier conclusions, and update the assessment if so (¶34). |
Stakeholders are not a separate exercise
¶42 makes engagement with affected stakeholders carried out in ongoing due diligence “a key input”, and AR 23 lists the typical categories: own workforce, value-chain workers, affected communities, and consumers and end-users.
AR 24 says that engagement is enough, without a separate engagement process for the assessment.
The process itself is assured
The limited assurance opinion covers “the process carried out by the undertaking to identify the information reported” (Art 34(1)), so a top-down conclusion needs the strategy and business-model analysis behind it on file.
- 1
Choose the route for each topic
Top-down (¶27): conclude from an analysis of strategy and business model, and assess specifically only where the answer is not evident. Bottom-up (¶28): assess individual impacts, risks and opportunities. The two can be combined topic by topic (AR 10).
- 2
Focus where impacts are likely
Use reasonable and supportable information available without undue cost or effort (¶32(a)). The undertaking need not assess every possibility across its value chain, but focuses where material matters are likely (¶32(b)).
- 3
Use regional and sector data for the value chain
The value chain can be assessed without direct input from suppliers, using average regional data, sector data or generally available information (¶33).
- 4
Identify impacts first
“In general, the starting point is the assessment of impacts” (¶36); then add risks and opportunities that do not arise from impacts, such as physical climate risk.
- 5
Score impact materiality
Actual negative impacts on severity; potential negative impacts on severity and likelihood. Severity is scale, scope and irremediable character (¶40). Positive impacts on scale, scope and, if potential, likelihood (¶41).
Impact materiality
Scoring impacts: severity first, likelihood only when potential
The impact side, impact materiality, asks how the undertaking affects people and the environment, through its own operations and its value chain, whether or not that ever reaches its accounts.
Severity has three factors, and AR 22 says any one of them can make a negative impact severe.
Read the impact rules, including gross and net
Scale is how serious the negative impact is, or how beneficial the positive one; scope is how widespread; irremediable character is whether and how far the harm could be put right (AR 22).
Likelihood is a separate factor that applies to potential impacts only, so “severity times likelihood” is wrong for an actual impact.
AR 15 says the undertaking need not analyse each characteristic separately if it can conclude that an impact is severe without doing so.
¶43 settles the gross-or-net question: an actual negative impact is assessed as it manifested in the reporting year, and remediation in that year is not taken into account.
A potential negative impact takes account of prevention and mitigation only if the policies and actions are implemented and can reasonably be assumed to work, and AR 27 excludes a policy that merely implies future actions.
Business relationships are not limited to direct contracts (¶39), so an impact deep in the supply chain can still be connected to the undertaking.
Four kinds of impactExplore
Four kinds of impact
Actual negative
Severity alone: scale, scope and irremediable character (¶40).
Four kinds of impact
Potential negative
Severity and likelihood; for human rights, severity takes precedence over likelihood (¶40).
Four kinds of impact
Potential positive
Scale, scope and likelihood (¶41); never netted against negative impacts (¶44).
Financial materiality
Scoring risks and opportunities: likelihood and magnitude
The financial side, financial materiality, asks how sustainability matters affect the undertaking’s development, financial position, performance, cash flows, access to finance or cost of capital, over the short, medium or long term (¶47).
Its scope is wider than the financial statements: ¶46 calls it “an expansion” of financial-statement materiality and extends it to the value chain.
Read the financial-materiality rules
¶50 assesses risks and opportunities “based on a combination of the likelihood of occurrence and the potential magnitude of the financial effects”.
AR 29 names the internal risk-management framework as a valuable input, and for banks and insurers the prudential frameworks may inform it.
AR 31 asks the undertaking to consider likely scenarios and anticipated financial effects that are not, or not yet, in its financial statements.
The joint ESRS–ISSB interoperability guidance says this definition of financial materiality is aligned with the IFRS S1 general requirements, which is why the financial half of the work can be reused for UK SRS.
Where risks come fromExplore
Where risks come from
Material impacts
An impact can become financially material, or be so from the start (¶¶35, 48(a)).
Where risks come from
Dependencies
On natural, human and social resources, whether or not the undertaking affects them (¶49).
Where risks come from
Other factors
Exposure to climate hazards or regulatory changes addressing systemic risks (¶48(c)).
Where risks come from
The test
Likelihood of occurrence combined with the potential magnitude of financial effects (¶50).
The topic universe
Ten topical standards, and you screen all of them
The point of a topic universe is that you do not start from the three things you already planned to discuss; you start from all ten and screen out.
A top-down conclusion that a topic is plainly immaterial is allowed, and must be evidenced from the strategy and business-model analysis.
Read how to build the long list
| Standards | Topics |
|---|---|
| E1–E5 | Climate change · pollution · water · biodiversity and ecosystems · resource use and circular economy |
| S1–S4 | Own workforce · workers in the value chain · affected communities · consumers and end-users |
| G1 | Business conduct |
Industry context helps build the long list: the SASB Standards set out topics by industry, and GRI’s material topics methodology project shows how it approaches impacts.
Once topics are material, ESG criteria covers what investors and ratings agencies score, and ESG strategy how the conclusions feed a board-approved plan.
The topical standardsExplore
The topical standards
E1–E5
Climate change, pollution, water, biodiversity and ecosystems, resource use and circular economy.
The topical standards
S1–S4
Own workforce, workers in the value chain, affected communities, consumers and end-users.
The topical standards
Entity-specific
A material matter no ESRS covers with enough granularity is reported under ¶11.
Worked example
Scoring an impact and a financial risk
The ESRS prescribe no scale, so the company sets one and records it.
The figures are invented.
The company is a UK group’s EU logistics subsidiary in CSRD scope; it scores each factor 1 to 5 and treats a severity of 3 or more, or a risk score of 9 or more, as material. Those thresholds are its own choice under ¶37.
| Item | Scores | Reasoning | Conclusion |
|---|---|---|---|
| Impact A: diesel fleet emissions (actual, negative) | Scale 3, scope 4, irremediable character 5 | Actual impact, so severity only (¶40). Any one characteristic can make an impact severe (AR 22), so severity reads at 5, not an average of 4.0. | Material: ESRS E1 |
| Impact B: excessive hours among subcontracted drivers (potential, negative, human rights) | Scale 4, scope 2, irremediable 2; likelihood 2 | An averaged severity of 2.7 × likelihood 2 = 5.3 would drop it. But scale alone makes it severe (AR 22), and for a potential human rights impact “the severity of the impact takes precedence over its likelihood” (¶40). | Material: ESRS S2 |
| Risk C: losing a major tender that requires low-emission delivery (transition risk) | Magnitude 4; likelihood 3 | 4 × 3 = 12, above 9 (¶50). It arises from Impact A, which ¶48(a) names as a source of risk. | Material: ESRS E1, financial |
Two refinements change results in practice.
A driver-hours policy reduces Impact B only if it is implemented and can reasonably be assumed to work; a policy implying future actions “shall not be considered” on its own (AR 27).
A positive impact, such as a new electric-van route, is assessed on its own and never netted against Impact A (¶44).
Run through UK SRS S1 instead, only Risk C is assessed as such: single (financial) materiality asks whether information could reasonably be expected to influence primary users’ decisions, by reference to cash flows, access to finance or cost of capital.
Impacts A and B enter only if and when they would move those measures.
This is a provisional illustration of the method, not a finding about any company.
Score your own matter
A scoring grid that follows the revised ESRS 1
The grid beside this text applies the rules the worked example used to a matter of your own, and a fuller register of fields is on the double materiality assessment template.
It takes the highest of scale, scope and irremediable character as severity, because any one of the three can make a negative impact severe.
For an actual negative impact it looks at severity alone; for a potential one it asks for likelihood too, except that for a potential human rights impact severity decides.
On the financial side it asks for magnitude and likelihood, the two factors the revised ESRS 1 names.
The 1 to 5 scales and the single threshold are a convention, not the standard’s: the ESRS set no numeric scale and do not require quantitative scoring, so whatever scale you adopt has to be recorded and applied consistently.
Add several matters and the grid keeps a short register, which is the shape an assurance provider will want to see behind the IRO-1 disclosure.
Double materiality · scoring grid
Negative impact · severity and likelihood
Financial · magnitude and likelihood
Material on both
Impact side: actual impact: severity 3 against your threshold 3 — material.
Financial side: magnitude 3 and likelihood 3 against 3 — material.
A matter material on either side is material under the ESRS; one material on neither is not reported, because the revised ESRS 1 forbids disclosing immaterial information.
Rules: revised ESRS 1 ¶40 (severity from scale, scope and irremediable character; likelihood for potential impacts; severity first for human rights) and the financial-materiality test of likelihood and magnitude.
The 1–5 scales, the single threshold and taking the highest of the three severity factors are this grid’s convention: the ESRS set no numeric threshold and do not require quantitative scoring.
Positive impacts (¶41: scale, scope and, if potential, likelihood) are assessed separately and never netted, so they are not scored here.
Nothing is stored or sent.
The matrix question
A double materiality matrix is a picture, not the assessment
The phrase “materiality matrix” does not appear anywhere in Delegated Regulation (EU) 2026/1563.
The standards require the process, the thresholds and the results, and ESRS 2 allows the material matters to be presented in a table.
Read why a matrix can mislead
A materiality matrix plots impact against financial effect, and a matter high on either axis is material on its own (¶35).
A matrix that only lights up the top-right corner has quietly turned an “either” test into a “both” test.
A matrix that averages scale, scope and irremediable character also breaks AR 22, under which any one factor can make an impact severe.
Used as a working view of the register, with those two rules respected, a matrix can still help a board see the results.
One matter, two assessments
Material on either axis
Report it: impacts count whether or not they are financially material (¶35).
Material on neither
Do not report it: immaterial ESRS information “shall not” be disclosed (¶24).
What the assessment produces
The disclosures a double materiality assessment feeds
A double materiality assessment report is not a separate document the ESRS ask for; its conclusions surface inside the sustainability statement.
The process goes into IRO-1, the results into IRO-2, and SBM-3 connects them to strategy and financial effects.
Read what each disclosure asks for
| ESRS 2 | What it reports from the assessment |
|---|---|
| IRO-1 | The process and decision steps; value-chain coverage; methods, inputs and assumptions; thresholds; how impacts were prioritised on severity and likelihood; whether due diligence and stakeholder consultation informed it; changes from last year; when it was last updated |
| IRO-2 | The material impacts, risks and opportunities; the basis for concluding climate is not material, if so; changes from last year; the list of disclosure requirements met; the table of datapoints from other EU law |
| SBM-3 | How material impacts originate from the strategy and business model; the effects of risks and opportunities, current and anticipated |
| BP-2 | Whether topics omitted under a phase-in were assessed as material |
The application requirements tell the company to focus on information specific to its own process and to avoid “boilerplate”, such as describing in detail that it applied the criteria in ESRS 1.
If climate change is judged not material, IRO-2 requires the basis for that conclusion, which makes it the one omission the standard insists on hearing about.
So the evidence file behind an assessment should be built to answer IRO-1 line by line: inputs used, thresholds set, judgements made, and the date of the last update.
Four ESRS 2 outputsExplore
Four ESRS 2 outputs
IRO-1
The process: steps, value-chain coverage, methods, inputs, thresholds, and when it was last updated.
Four ESRS 2 outputs
IRO-2
The results: material impacts, risks and opportunities, and the disclosure requirements met.
Four ESRS 2 outputs
SBM-3
How material matters originate from and affect strategy and the business model.
Four ESRS 2 outputs
BP-2
Whether topics omitted under a phase-in were assessed as material.
The assessment across a reporting year
When each part of the double materiality assessment happens
The assessment is not a single workshop; it runs alongside the reporting year and is checked again at the reporting date.
This sequence is an illustration of one way to order the work, not a timetable the ESRS prescribe.
- 01 / Scope01
Confirm the version and the entity
Which ESRS applies to this financial year, and for which reporting entity and value chain. - 02 / Route02
Choose top-down or bottom-up
Topic by topic, with the strategy and business-model analysis written down. - 03 / Impacts03
Assess impacts first
Severity, and likelihood for potential impacts, using due-diligence evidence. - 04 / Finance04
Assess risks and opportunities
Likelihood and magnitude, including those unrelated to impacts. - 05 / Decide05
Record thresholds and conclusions
Qualitative or quantitative, applied consistently and kept for assurance. - 06 / Report date06
Check for significant changes
Update the assessment only where something significant has changed.
Official guidance
What EFRAG has published, and for which ESRS
EFRAG gives technical advice; the Commission adopts the ESRS, and the delegated regulation is the law.
EFRAG’s IG 1 materiality guidance is still useful on method, but it is non-authoritative and maps the 2023 paragraph numbers.
Read what IG 1 says that still helps
IG 1 ¶65 says the assessment “shall reflect both the impact and financial materiality perspectives … but need not perform two separate and independent processes”.
It describes four illustrative steps: understanding the context, identifying impacts, risks and opportunities, assessing and determining the material ones, and reporting.
EFRAG’s implementation guidance page says the guidance relates to the ESRS adopted in 2023 and that it would not issue updated guidance for the simplified standards before Commission adoption.
So for FY2027 cite the revised ESRS 1 itself, and use IG 1 only for method, never for paragraph numbers.
What each of IG 1, IG 2 and IG 3 covers, and how their ideas map to the revised paragraphs, is set out under EFRAG implementation guidance.
Guidance statusExplore
Guidance status
IG 1
Materiality assessment, 31 May 2024: non-authoritative, written for the 2023 ESRS.
Guidance status
IG 2 and IG 3
Value chain and the datapoint list, same date and same status.
Guidance status
Revised ESRS
No implementation guidance listed as at 11 October 2026.
Guidance status
The law
Where guidance and the ESRS differ, the ESRS take precedence.
An example by sector
A professional services firm: where the assessment usually lands
Sector shapes the long list more than anything else, which is why the revised ESRS 2 asks a company to describe the significant sectors it operates in.
Take an illustrative EU consulting subsidiary of a UK professional services group, in CSRD scope on its own figures.
Read the illustrative sector reasoning
Its own workforce under ESRS S1 is the obvious candidate on both lenses: working conditions and training are impacts on people, and the ability to recruit and retain is a financial risk.
Business conduct under ESRS G1 is a strong candidate for a firm whose product is advice and whose risk is reputational.
Climate under ESRS E1 often turns on Scope 3 — business travel and purchased services — rather than on offices, and a top-down conclusion either way needs the strategy and business-model analysis on file.
Topics such as water or pollution may well be immaterial for such a firm, and the revised standards then say they shall not be reported.
These are possibilities to test, not conclusions: the assessment has to be run on the firm’s own facts, and the ESRS page lists what each topical standard covers.
Likely candidates to testExplore
Likely candidates to test
S1 own workforce
Working conditions are an impact; recruiting and retaining people is a financial risk.
Likely candidates to test
G1 business conduct
Advice is the product, and reputation is the risk.
Likely candidates to test
E1 climate
Often turns on Scope 3 — travel and purchased services — rather than offices.
Likely candidates to test
Water, pollution
Possibly immaterial; if so, the standards say they shall not be reported.
Once, reported twice
What carries over to UK SRS S1
EFRAG’s IG 1 guidance says the assessment “shall reflect both the impact and financial materiality perspectives … but need not perform two separate and independent processes”.
The joint ESRS–ISSB interoperability guidance says the ESRS definition of financial materiality is aligned with IFRS S1, on which UK SRS S1 is built.
Read the carry-over in detail
| Step | ESRS (double) | UK SRS S1 (single, financial) |
|---|---|---|
| Whose decisions | Primary users and other users, such as business partners, trade unions and civil society | Primary users of general purpose financial reports (¶18) |
| Impacts on people and environment | Assessed in their own right | Only as a source of risks and opportunities |
| Financial test | Effects on development, position, performance, cash flows, access to finance or cost of capital (¶47) | Effects on cash flows, access to finance or cost of capital (¶3) |
| Result | Material topics and sub-topics | Material sustainability-related risks and opportunities |
So the financially material subset of an ESRS assessment is the natural starting point for UK SRS S1, whose own test is set out under UK SRS materiality, and the impact-only findings stay on the EU side.
Under the FCA’s final rules in PS26/19, which finalised CP26/5, a UK listed company reports against UK SRS on a comply-or-explain basis, with the two-year relief for S1 matters beyond climate.
The UK standards are summarised in the FRC’s sustainability reporting FAQ; our UK SRS readiness assessment shows where the work lands, and the ESRS and UK SRS comparison sets the frameworks side by side.
The wider picture of what “material” means in accounts, audit and each framework is on materiality explained.
One evidence base, two regimesExplore
One evidence base, two regimes
Whose decisions
ESRS: primary users and other users. UK SRS S1: primary users of general purpose financial reports (¶18).
One evidence base, two regimes
Impacts
ESRS: in their own right. UK SRS: only as a source of risks and opportunities.
One evidence base, two regimes
Financial test
Aligned definitions: cash flows, access to finance, cost of capital.
One evidence base, two regimes
Result
Material topics under ESRS; material risks and opportunities under UK SRS.
What goes wrong
Ten mistakes that change the result
Averaging severity
Scale, scope and irremediable character are not a mean; any one can make a negative impact severe (AR 22).
Counting planned policies
A policy implying future actions is not considered on its own in assessing an impact (AR 27).
Netting
Positive impacts are assessed on their own; compliance with the law is not a positive impact (¶44).
Letting likelihood bury a human rights impact
For potential human rights impacts, severity takes precedence over likelihood (¶40).
Reporting everything to be safe
Immaterial information “shall not” be disclosed (¶24), apart from supplementary information under §8.2.
Over-disclosure is now a defect.
Surveying every supplier
Focus on where material impacts are likely (¶32(b)); sector and regional data can stand in (¶33).
Running a separate stakeholder survey by default
Due-diligence engagement is the key input, without a separate process (¶42, AR 24).
Requiring both axes
A matter material on impact alone is material (¶35).
Citing numbers without a version
“ESRS 1 ¶45” is the 2023 severity paragraph; the revised one is ¶40.
Starting again every year
The duty is to check for significant changes and update where they exist (¶34).
Doing it
Run it yourself, buy software, or bring someone in?
This site is an independent reference, not a provider of any of the three, so this is the shape of the decision rather than a pitch.
A one-off assessment triggered by a single customer request is usually cheapest done in-house against the method above — after checking the cap.
Read the resourcing considerations
A repeating annual cycle across several entities is where software earns its place (software or consultants sets out the choice), because a system of record and an audit trail beat a spreadsheet rebuilt each year.
Independent advice earns its fee on the judgement calls: a contested threshold, a group-level top-down structure, or a first evidence file for assurance.
On the UK assurance side, the FRC publishes its assurance standards and a page on sustainability assurance; assurance of UK SRS reporting is not required.
The standards themselves are on EFRAG’s sustainability reporting hub, the IFRS Sustainability Standards Navigator and EUR-Lex, and the Commission announced the revision on 3 July 2026.
Before you commit
Answer the cap questions above, then score one topic against the method.
Both take minutes and tell you how large the exercise really is.
To talk it through, book a free 15-minute call or start from the UK SRS reference.
Secondary commentary we read on Omnibus I: Morrison Foerster, relied on for nothing here.
Three ways to resource itExplore
Three ways to resource it
In-house
Often enough for a one-off assessment triggered by a single request, after checking the cap.
Three ways to resource it
Software
Earns its place in a repeating cycle across several entities, as a system of record.
Three ways to resource it
Independent advice
For judgement calls: contested thresholds, group top-down structures, a first assurance file.
Three ways to resource it
Assurance
For a CSRD reporter, the process is inside the limited assurance opinion.
Frequently asked
Questions people ask
What is a double materiality assessment?
It is the process by which an undertaking reporting under the ESRS decides which sustainability matters to report.
It assesses impact materiality — the undertaking’s actual and potential impacts on people and the environment — and financial materiality — the risks and opportunities that could affect its finances — and treats a matter as material if it meets either test.
What are the steps of a double materiality assessment?
Under the revised ESRS 1 the undertaking first identifies the topics related to its material impacts, risks or opportunities, then decides the information to report on each (¶25).
In practice: choose top-down or bottom-up for each topic; focus where material matters are likely; assess impacts first; score negative impacts on severity and, if potential, likelihood; score risks and opportunities on likelihood and magnitude of financial effects; record thresholds; report ESRS 2 and the material sub-topics only; and revisit at each reporting date.
Does UK SRS require a double materiality assessment?
No. UK SRS S1 applies single (financial) materiality, like IFRS S1.
Nothing in UK law or the FCA’s listing rules asks for a double materiality assessment.
A UK company runs one because an EU parent, EU customer or EU lender asks, or because an EU entity in its group is in CSRD scope.
What is the difference between the top-down and bottom-up approach?
Top-down (revised ESRS 1 ¶27) lets an undertaking conclude, without further assessment, that a topic is material or not from an analysis of its strategy, business model, sectors, geographies and value chain; where the answer is not evident it must assess specifically.
Bottom-up (¶28) assesses individual impacts, risks and opportunities.
AR 10 allows the two to be combined topic by topic, and AR 9 says top-down generally does not require assessment at the level of individual impacts.
Which version of the ESRS do I use for FY2026?
For financial years starting in 2026 there are three choices: the 2023 ESRS as last amended by Delegated Regulation (EU) 2025/1416; those standards with eight named reliefs, including the top-down approach; or the revised ESRS in full.
The undertaking must state which it applied.
From financial years beginning on or after 1 January 2027 the revised ESRS apply with no choice.
Can an EU customer require me to run a double materiality assessment?
Not if you are a protected undertaking and the request is for its CSRD reporting.
A supplier that does not exceed an average of 1,000 employees in the preceding financial year may decline information beyond the voluntary standard’s capped datapoints, and the customer must say which part of its request exceeds the cap.
The customer may still ask, and the cap does not cover requests for other purposes such as EU due diligence.
Does a double materiality assessment need quantitative scoring?
Not necessarily.
The revised ESRS 1 says quantitative information or scoring is not necessarily required and a qualitative analysis may be sufficient to conclude on materiality (AR 13).
In a top-down approach qualitative considerations may be enough (AR 19).
The thresholds and the reasoning must still be recorded, because the assessment process is inside the assurance opinion.
Is a double materiality matrix required?
No. The phrase does not appear anywhere in Delegated Regulation (EU) 2026/1563.
The ESRS require the process, thresholds and results to be disclosed in ESRS 2 IRO-1 and IRO-2; a matrix is an optional way to present a working view, and it must not turn an either-or test into a both test.
Do I need a stakeholder survey for a double materiality assessment?
No. The revised ESRS 1 makes engagement with affected stakeholders carried out in ongoing due diligence a key input (¶42) and says that engagement is enough, “without the need to put in place a separate engagement process for the materiality assessment” (AR 24).
An undertaking may also seek direct input from stakeholders or their representatives if it chooses.
How are policies and actions treated in the assessment?
Actual negative impacts are assessed as they manifested in the reporting year, and remediation in that year is not taken into account.
Potential negative impacts take account of prevention and mitigation only if the policies and actions are implemented and can reasonably be assumed to work; plans not yet implemented are not considered (¶43, AR 27).
Positive impacts are never netted against negative ones (¶44).
What carries over from a double materiality assessment to UK SRS S1?
The financially material subset is the natural starting point.
The joint ESRS–ISSB guidance says the ESRS definition of financial materiality is aligned with IFRS S1, on which UK SRS S1 is based.
The impact-only findings do not carry over unless they would affect cash flows, access to finance or cost of capital.
Is the double materiality assessment assured?
Yes, for a CSRD reporter.
The limited assurance opinion under Article 34(1) of the Accounting Directive covers the process the undertaking carried out to identify the information reported, so the method, not only the result, has to stand up.
Do I have to repeat the assessment every year?
Not from scratch.
The revised ESRS 1 requires the undertaking, at each reporting date, to consider whether significant changes could affect its earlier conclusions and to update the assessment where they do (¶34).
What does a double materiality assessment report contain?
The ESRS do not ask for a separate report.
The assessment surfaces in the sustainability statement: ESRS 2 IRO-1 describes the process, methods, inputs, thresholds and when it was last updated; IRO-2 lists the material impacts, risks and opportunities and the disclosure requirements met; SBM-3 links them to strategy and financial effects.
Is there official EFRAG guidance for the revised ESRS assessment?
Not yet.
EFRAG’s IG 1 materiality guidance of May 2024 is non-authoritative and written for the 2023 ESRS, and EFRAG said it would not issue updated guidance for the simplified ESRS before the Commission adopted them.
As at 11 October 2026 its implementation-guidance page lists no guidance for the revised ESRS.
Who can carry out a double materiality assessment?
The undertaking itself is responsible for it, whoever helps.
There is no accreditation for running one.
For a CSRD reporter the process is inside the limited assurance opinion, so whoever runs it must leave an evidence trail an assurance provider can test.
What is a material sub-topic, and why does it matter?
Each topical standard lists sub-topics, and the revised ESRS 1 says that where a material impact, risk or opportunity concerns a sub-topic the undertaking reports only the material information for that sub-topic (¶30).
A material topic therefore does not mean reporting the whole standard.
Does a UK supplier need a double materiality assessment to answer a customer questionnaire?
Usually not.
A protected undertaking, with an average of 1,000 employees or fewer in the preceding financial year, can decline information beyond the voluntary standard’s capped datapoints when the request is for the customer’s CSRD reporting, and a full assessment is well beyond those datapoints.
Sources
Primary sources
Every figure, date and status on this page traces to the instrument’s owner.
Secondary commentary is never the source for a number.
Checked against 15 sources fromEUR-LexCouncil of the EUEFRAGEuropean CommissionIFRS Foundation / EFRAGDepartment for Business and Trade
- EUR-LexCommission Delegated Regulation (EU) 2026/1563 — revised ESRS 1, Chapter 3 (¶¶22–55, AR 8–AR 33), and Articles 2 and 3
The assessment as published in the Official Journal on 21 September 2026; applies to financial years beginning on or after 1 January 2027, with a three-way choice for FY2026.
- Council of the EUC(2026) 5010 final, Annex I — the revised ESRS as transmitted
The same text before publication; useful where EUR-Lex is slow to load.
- EFRAGESRS Knowledge Hub — revised ESRS 2, IRO-1, IRO-2, SBM-1 and SBM-3 (delegated-act text)
What the statement says about the assessment process and its results; no boilerplate.
- EUR-LexDirective 2013/34/EU, consolidated 18 March 2026 — Art 19a(3) and Art 34(1)
The value-chain cap, and the assurance opinion’s coverage of “the process carried out by the undertaking to identify the information reported”.
- EUR-LexDirective (EU) 2026/470 (Omnibus I)
In force 18 March 2026: the scope test and the value-chain cap; transposition by 19 March 2027.
- EUR-LexCommission Delegated Regulation (EU) 2026/1560 — the voluntary standard, Art 3(2)
The cap comprises only the Annex II datapoints.
- European CommissionFeedback on sustainability reporting standards: the value chain cap, 6 May 2026
The cap applies only to requests made for CSRD reporting.
- EFRAGIG 1: Materiality Assessment Implementation Guidance, ¶65
One assessment reflecting both perspectives “but need not perform two separate and independent processes”. Non-authoritative; written for the 2023 ESRS.
- EFRAGESRS implementation guidance documents — project page
IG 1–3 relate to the 2023 ESRS; no guidance for the revised ESRS is listed as at 11 October 2026.
- IFRS Foundation / EFRAGESRS–ISSB Standards Interoperability Guidance, §1.1
The ESRS financial-materiality definition is aligned with IFRS S1.
- Department for Business and TradeUK SRS S1 General Requirements — ¶3 and ¶18
The single (financial) materiality test the UK applies.
- IFRS FoundationIFRS S1 General Requirements
The ISSB baseline UK SRS S1 endorses.
- IFRS FoundationSASB Standards
Industry topics to help build a long list; the ISSB is responsible for them.
- Financial Conduct AuthorityPS26/19 — UK SRS on a comply-or-explain basis
Finalises CP26/5; no UK rule asks for a double materiality assessment.
- Financial Reporting CouncilSustainability reporting developments — frequently asked questions
The FRC’s own summary of the UK regime.
Continue reading
Read next
Concept
Double materiality
The concept, where EU law writes it down, and how it differs from UK SRS.
Process
Materiality assessment, any framework
The same work for UK SRS, GRI or the ESRS, and how the test changes.
Suppliers
VSME for UK suppliers
What the capped questionnaire asks, and what you can decline.
The UK standard
UK SRS S1
The UK’s single, financial materiality standard.