ESRS
Material on impact; may also become financially material (¶35).
Materiality · a term, not a test
Dynamic materiality: a description, not a test
Dynamic materiality describes a sustainability matter whose materiality changes over time, usually an impact on people or the environment that later affects the company’s finances.
No standard defines it as a test, so the useful question is which lens a matter sits under now, and which provision moves it.
In the revised ESRS that provision is ¶35, checked at each reporting date under ¶34; in UK SRS S1 it is the reassessment duty in ¶B28.
The term
Dynamic materiality names a movement, not a rule
The phrase is used in commentary on sustainability reporting to describe matters moving between lenses, or in and out of materiality, over time.
None of the ESRS, IFRS S1, UK SRS S1 or the GRI Standards defines it, so a report that says it “applies dynamic materiality” has not yet said which test it applied.
Read why the lens has to be named
The ESRS test is double materiality: a matter is material for its impacts, its financial effects, or both.
The UK SRS test is single (financial) materiality, judged by the decisions of primary users of general purpose financial reports (S1 ¶18).
GRI 3 asks only about the organisation’s most significant impacts, and its significance is “the sole criterion” for a material topic.
Each framework already asks for its judgements to be revisited, so “dynamic” adds a description rather than a requirement.
The same caution applies to “single materiality”, another label rather than a defined test; single against double materiality sets the two lenses side by side.
Name the lensExplore
Module 01 / 04
Impact lens
How the company affects people and the environment (revised ESRS 1 ¶39).
Module 02 / 04
Financial lens
How sustainability matters affect cash flows, finance and cost of capital (¶47; UK SRS S1 ¶3).
Where the mechanism is written
The provisions that make materiality change over time
Revised ESRS 1 ¶35 is the closest thing in any standard to a definition of the movement the term describes.
“An impact can be financially material from the start or become financially material, when it is reasonably expected to affect the undertaking’s financial performance, financial position, cash flows, its access to finance or the cost of capital over the short, medium or long term.”
Read the ESRS provisions in full
The same paragraph adds: “Impacts can be material exclusively from an impact perspective, irrespective of whether they are financially material.”
¶36 says that “in general, the starting point is the assessment of impacts”, with risks and opportunities unrelated to impacts, such as physical risks, added after.
¶48 lists the sources of material risks and opportunities: material impacts identified in the impact assessment, dependencies on natural, human and social resources, and other factors such as exposure to climate hazards or regulatory changes.
¶34 sets the rhythm: “At each reporting date, the undertaking shall consider whether significant changes have occurred that could affect the conclusions of the materiality assessment conducted in previous reporting periods.”
If such changes are found, the undertaking “shall review and update the assessment”.
All of this is in Delegated Regulation (EU) 2026/1563, which applies to financial years beginning on or after 1 January 2027.
- 1
Material impact
Assessed on severity and, if potential, likelihood (revised ESRS 1 ¶40).
- 2
Source of risk
Material impacts are one source of risks and opportunities (¶48(a)).
- 3
Financial effect
Reasonably expected to affect cash flows, finance or cost of capital (¶35).
- 4
Reporting date
Significant changes are checked and the assessment updated (¶34).
UK SRS
The UK version: reassess at each reporting date
UK SRS S1 applies single (financial) materiality, so an impact enters a UK report only through its effect on the entity’s prospects.
¶2 says the entity’s dependencies on resources and relationships, and its impacts on them, “give rise to sustainability-related risks and opportunities for the entity”.
Read how the UK test moves
¶B28 is the reassessment duty: “An entity shall reassess its materiality judgements at each reporting date”.
So a supplier-labour impact that is outside a UK SRS report this year can enter it next year, once it could reasonably be expected to affect cash flows, access to finance or cost of capital (¶3).
The ISSB’s Basis for Conclusions records at BC69 that sustainability materiality judgements “will inevitably differ” from those for financial statements, because the information is about prospects over longer horizons.
Its November 2024 educational material adds that materiality is an entity-specific characteristic of information, and that no thresholds are specified.
For listed companies the regime is comply or explain under FCA PS26/19, for periods beginning on or after 1 January 2027, and the UK test is set out on UK SRS materiality.
UK SRS S1Explore
Module 01 / 04
¶2
Dependencies on and impacts on resources and relationships give rise to risks and opportunities.
Module 02 / 04
¶18
Material if it could reasonably be expected to influence primary users’ decisions.
Module 04 / 04
¶B28
“An entity shall reassess its materiality judgements at each reporting date.”
GRI
GRI 3 has no financial lens for a matter to move into
GRI 3: Material Topics 2021 defines material topics as an organisation’s most significant impacts on the economy, environment and people, including impacts on their human rights.
Significance is “the sole criterion to determine whether a topic is material for reporting”, so a topic’s financial effects never decide it.
Read the GRI position
Under GRI the only movement is in significance: a topic can rise above or fall below the organisation’s documented threshold.
GRI 3 asks the organisation to arrange its impacts from most to least significant and to document the cut-off it uses.
The GRI materiality guide covers the four steps and the disclosures, and impact materiality compares GRI’s severity factors with the ESRS’s.
An illustration
One impact across three reporting dates
The company and its scores are invented.
It is an EU subsidiary of a UK group, in CSRD scope, reporting under the revised ESRS from FY2027.
- Year 101
Material on impact only
Water withdrawal in a water-stressed area is a material negative impact on scale and scope (¶40); no financial effect is yet reasonably expected. - Year 202
A significant change
A regional authority consults on withdrawal limits; at the reporting date the company reviews its assessment because the external environment has changed (¶34). - Year 303
Also financially material
The limits are adopted and expected to raise costs over the medium term, so the impact is now a source of a material risk (¶¶35, 48(a)). - Each year04
Disclosed as a change
IRO-1 ¶35(d) describes the significant change to the process, ¶35(e) the date of the last update, and IRO-2 lists the material risk.
Under UK SRS S1 the same company would have reported nothing on the water impact in year 1, and the risk from year 3, because ¶B28 asks for the judgement to be reassessed at each reporting date.
The point of the illustration is that no extra test was needed: the movement came from applying ¶35 and ¶34 each year.
This is a provisional illustration of the method, not a finding about any company.
Documenting the change
What the report says when materiality moves
The revised ESRS 2 asks for the change itself to be visible.
IRO-1 ¶35 requires “(d) significant changes to the process compared to the prior reporting period; and (e) when it last updated its materiality assessment.”
Read how to keep the evidence
The working register should keep each year’s conclusion, the threshold applied and the reason for any change, which is the record a limited assurance provider will test.
The CSRD assurance opinion covers “the process carried out by the undertaking to identify the information reported” (Accounting Directive Art 34(1)), as the CSRD assurance guide explains.
The ESRS 2 application requirements also warn against boilerplate, so the description should be specific to the company’s own assessment.
The method for running and recording the assessment is on the double materiality assessment, and the fields of a register are listed under impacts, risks and opportunities.
ESRS 2 disclosuresExplore
Module 01 / 04
IRO-1 ¶35(d)
Significant changes to the process compared with the prior period.
The instruments
Where the mechanism has been written, by date
The movement the term describes has been in EU and UK texts for some time, under different paragraph numbers.
- 31 July 202301
First ESRS adopted
Delegated Regulation (EU) 2023/2772 sets the double materiality assessment under the 2023 numbering. - May 202402
- November 202403
ISSB educational material
Materiality is entity-specific; the material explains and adds no requirement. - 25 February 202604
UK SRS published
UK SRS S1 ¶B28 requires materiality judgements to be reassessed at each reporting date. - 21 September 202605
Revised ESRS published
Delegated Regulation (EU) 2026/1563 puts the movement at ESRS 1 ¶35 and the annual check at ¶34. - FY202706
Revised ESRS apply
Financial years beginning on or after 1 January 2027; FY2026 has a three-way version choice.
Time horizons
Short, medium and long term already carry the time dimension
Both regimes look forward, so a matter expected to become material within the long term can be material today.
That is a second reason “dynamic” adds little: a potential impact or a future financial effect is already inside the tests.
Read the time-horizon provisions
Revised ESRS 1 ¶39 covers actual or potential, positive or negative impacts “over the short, medium or long term”.
¶47 covers financial effects over the short, medium or long term, and UK SRS S1 ¶3 uses the same horizons.
AR 15 adds that the undertaking need not analyse every time horizon, nor each characteristic of severity where an impact is plainly severe.
The financial definitions in the two regimes are aligned, as the joint interoperability guidance records, so a forward-looking financial judgement can serve both.
Time in the testsExplore
Module 01 / 04
ESRS impacts
Actual or potential impacts over the short, medium or long term (¶39).
Module 03 / 04
UK SRS
Cash flows, access to finance or cost of capital over the short, medium or long term (¶3).
Module 04 / 04
Potential impacts
Likelihood is assessed for potential impacts (¶40).
UK groups reporting both
One matter, two reports, two different moments
A UK group whose EU subsidiary is in CSRD scope can meet the same matter at different times in its two reports.
The subsidiary reports an impact as soon as it is material on impact; the parent’s UK SRS report picks it up only when it affects the group’s prospects.
Read how to keep the two in step
EFRAG’s non-authoritative IG 1 says one assessment can reflect both perspectives without two separate processes.
The joint interoperability guidance says the ESRS definition of financial materiality is aligned with IFRS S1, on which UK SRS S1 is built.
So the group’s record can show, matter by matter, when each lens first applied.
A UK group with an EU subsidiaryExplore
Module 01 / 04
EU subsidiary
Reports the impact as soon as it is material on impact (ESRS 1 ¶35).
Module 02 / 04
UK parent
Reports the related risk once it affects prospects (UK SRS S1 ¶¶3, 18).
Module 03 / 04
Shared evidence
The financial definitions are aligned, so one assessment can feed both.
Labels and tests
Single, double, dynamic: which are tests?
Two of the four words in common use name tests that standards define; two are descriptions.
Double materiality and financial materiality are written into the ESRS and UK SRS; “single” and “dynamic” are labels for how those tests behave.
Read the definitions behind the labels
The two limbs of double materiality are in Article 19a(1) of the Accounting Directive: impacts on sustainability matters, and how sustainability matters affect the undertaking.
The ISSB removed “enterprise value” from its materiality wording and aligned the definition with the IASB’s, as its Basis for Conclusions records at BC67.
So the accurate UK description is single (financial) materiality, and the accurate EU description is double materiality, each reassessed at each reporting date.
How accounting and audit use the same word is on materiality in accounting.
Labels against testsExplore
Module 04 / 04
“Dynamic materiality”
A label for movement over time; not a defined term.
Evidence
A change in materiality has to survive assurance
A matter that moves between lenses is exactly where an assurance provider will ask for the reasoning.
The record should show what changed, which scores moved, and that the threshold stayed the same.
Read what to keep
Revised ESRS 1 ¶37 asks for “appropriate qualitative considerations and quantitative thresholds”, and no standard sets the number, as materiality thresholds explains.
Changing the threshold and the conclusion in the same year makes the change hard to explain, so record them separately.
Sustainability assurance more broadly is covered on sustainability assurance.
What the record showsExplore
Module 01 / 04
The trigger
The significant change found at the reporting date (¶34).
Module 02 / 04
The scores
Severity, likelihood and financial magnitude before and after.
Module 03 / 04
The threshold
The same recorded threshold, applied consistently (¶37).
What goes wrong
Five dynamic materiality mistakes
Treating it as a fourth test
No standard defines it; name the lens and the paragraph instead.
Waiting for financial effect before reporting an impact
Under the ESRS an impact can be material on impact alone (¶35).
Rebuilding the assessment every year
The duty is to check for significant changes and update where found (¶34); UK SRS S1 ¶B28 asks for judgements to be reassessed.
Leaving the change undescribed
IRO-1 ¶35(d)–(e) asks for significant process changes and the date of the last update.
Attributing a definition to a standard-setter
None of the standards read here defines the term.
| Framework | Does it use the term? | What moves a matter | How often it is checked |
|---|---|---|---|
| Revised ESRS | No | An impact can become financially material (ESRS 1 ¶35) | Each reporting date, for significant changes (¶34) |
| UK SRS S1 | No | Dependencies and impacts give rise to risks and opportunities (¶2) | Each reporting date (¶B28) |
| GRI 3 | No | Significance relative to other impacts, against a documented threshold | Not stated in the passages quoted here |
The wider meaning of material, from accounts to audit to each sustainability framework, is on materiality explained.
Frequently asked
Questions people ask
What is dynamic materiality?
It is a descriptive term for a sustainability matter whose materiality changes over time, most often an impact on people or the environment that later becomes financially material to the company.
It is not a test defined in the ESRS, in IFRS S1 or UK SRS S1, or in the GRI Standards.
Is dynamic materiality a requirement under the ESRS?
No. The revised ESRS do not use the term.
They contain the mechanism it describes: revised ESRS 1 ¶35 says an impact can be financially material from the start or become financially material, and ¶34 asks the undertaking to consider at each reporting date whether significant changes affect its earlier conclusions.
Is dynamic materiality the same as double materiality?
No. Double materiality is the ESRS test: a matter is material for its impacts, its financial effects, or both.
Dynamic materiality describes movement between those lenses, or in and out of materiality, over time.
Does UK SRS use dynamic materiality?
Not as a term.
UK SRS S1 applies single (financial) materiality, and ¶B28 requires an entity to reassess its materiality judgements at each reporting date.
Under ¶2 an entity’s dependencies and impacts give rise to sustainability-related risks and opportunities, so an impact can enter a UK SRS report once it affects the entity’s prospects.
Do I have to redo my materiality assessment every year because materiality is dynamic?
Not from scratch.
The revised ESRS ask the undertaking to check at each reporting date for significant changes and to update the assessment if it finds them (¶34).
UK SRS S1 ¶B28 asks for materiality judgements to be reassessed at each reporting date.
Which ESRS paragraph describes an impact becoming financially material?
Revised ESRS 1 ¶35: “An impact can be financially material from the start or become financially material, when it is reasonably expected to affect the undertaking’s financial performance, financial position, cash flows, its access to finance or the cost of capital over the short, medium or long term.”
Where do material impacts appear in the financial assessment?
Revised ESRS 1 ¶48 names material impacts identified in the impact materiality assessment as one source of material risks and opportunities, alongside dependencies and other factors such as climate hazards or regulatory change.
How is a change in materiality disclosed?
ESRS 2 IRO-1 ¶35(d) asks for significant changes to the process compared with the prior reporting period, and ¶35(e) asks when the undertaking last updated its materiality assessment.
A change in which topics are material shows in the IRO-2 list of material impacts, risks and opportunities.
Does GRI use dynamic materiality?
The GRI Standards do not define it.
GRI 3 asks for the organisation’s most significant impacts, and the significance of an impact is the sole criterion for whether a topic is material; financial effects on the organisation are not part of the GRI test.
Who invented the term dynamic materiality?
This page does not attribute it.
The phrase is used in commentary on sustainability reporting, and none of the standards read for this page defines or adopts it.
Can a matter stop being material?
Yes.
The checks at each reporting date work in both directions: a matter can drop below the undertaking’s recorded threshold, and under revised ESRS 1 ¶24 information that is not material shall not be disclosed, except supplementary information under section 8.2.
Is single materiality static?
No. “Single materiality” is also a descriptive label; the UK SRS test is financial materiality to primary users of general purpose financial reports (S1 ¶18), and ¶B28 requires those judgements to be reassessed at each reporting date.
How should a company describe dynamic materiality in its report?
By naming the lens and the provision rather than the label: for example, that an impact assessed under revised ESRS 1 ¶¶38–44 has also become financially material under ¶¶45–50, and that the change is described under ESRS 2 IRO-1 ¶35(d).
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 12 sources fromEUR-LexEFRAGDepartment for Business and TradeIFRS FoundationGlobal Reporting InitiativeIFRS Foundation / EFRAG
- EUR-LexCommission Delegated Regulation (EU) 2026/1563 — revised ESRS 1 ¶¶34–36, 48
¶35: an impact can be financially material from the start or become so; ¶34: check for significant changes at each reporting date.
- EFRAGESRS Knowledge Hub — revised ESRS 2, IRO-1 ¶35(d)–(e)
Significant changes to the process, and when the assessment was last updated.
- EUR-LexCommission Delegated Regulation (EU) 2023/2772 — the 2023 ESRS
The first set; paragraph numbers differ from the revised set.
- EUR-LexDirective 2013/34/EU, consolidated 18 March 2026 — Art 19a(1)
The two limbs: impacts on sustainability matters, and how sustainability matters affect the undertaking.
- Department for Business and TradeUK SRS S1 — ¶2, ¶18 and ¶B28
Dependencies and impacts give rise to risks and opportunities; reassess judgements at each reporting date.
- Department for Business and TradeUK SRS S1 and S2 — publication page
Published 25 February 2026.
- IFRS FoundationIFRS S1 Basis for Conclusions — BC67, BC69
Materiality aligned with the IASB’s definition; sustainability judgements differ from financial-statement ones.
- IFRS FoundationSustainability-related risks and opportunities and the disclosure of material information (November 2024)
Educational material; materiality is entity-specific and no threshold is set.
- Global Reporting InitiativeGRI 3: Material Topics 2021
Material topics are the most significant impacts; significance is the sole criterion.
- EFRAGIG 1: Materiality Assessment Implementation Guidance (May 2024)
Non-authoritative and written for the 2023 ESRS.
- IFRS Foundation / EFRAGESRS–ISSB Standards Interoperability Guidance, §1.1
The financial-materiality definitions are aligned; the regimes are not.
- Financial Conduct AuthorityPS26/19 — UK SRS on a comply-or-explain basis
Listed companies, periods beginning on or after 1 January 2027.
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