Every double materiality assessment is, implicitly, one of two things: a top-down process that starts from known positions and validates them, or a bottom-up process that builds from a blank page. Most first-cycle practitioners do not consciously choose. The simplified ESRS brings the choice into the open and accommodates both — with qualitative analysis sufficient where the conclusion is clear.[1]
The short version
Bottom-up walks the AR 16 taxonomy systematically, scoring each matter on impact and financial dimensions. Strength: comprehensiveness. Weakness: redundancy for established matters. Top-down starts from conclusions the undertaking already holds with confidence, applying qualitative reasoning. Strength: efficiency. Weakness: risk of blind spots. Most Wave 1 practitioners are converging on hybrid: top-down for headline matters, bottom-up for the assessment margin. The simplified ESRS explicitly accommodates this.[2]
The two approaches, in one paragraph each
Bottom-up starts from the AR 16 taxonomy and walks systematically through every sustainability matter, scoring each for impact and financial materiality, and reaching conclusions by aggregation. The strength is comprehensiveness — nothing is missed. The weakness is redundancy. For large filers, the bottom-up process produces the obvious answer (climate change is material, workforce matters are material) through a quantitative route that consumes substantial resources.
Top-down starts from conclusions that the undertaking already holds with confidence — embedded in strategy, public commitments, existing risk registers, or prior-cycle assessments — and applies qualitative reasoning to validate them. Bottom-up identification is reserved for matters where the answer is not obvious. The strength is efficiency. The weakness is blind spots — top-down can confirm what the undertaking already thinks, without surfacing what it does not.
The choice, across four dimensions
| Dimension | Bottom-up fits when | Top-down fits when |
|---|---|---|
| Cycle maturity | First cycle, or prior programmes were fragmented across functions. | Second or third cycle, with internal consensus on material matters. |
| Sector clarity | Conglomerates, diversified holdings, sectors where industry has not converged on what matters. | Integrated energy, financial services, consumer goods — sectors where materiality is established. |
| Assurance | Quantitative evidence trail — scores, thresholds, aggregations — sits in a defined framework. | Rigorous written reasoning replaces scoring. Requires documentation discipline. |
| Stakeholder engagement | Broad and exploratory — taxonomy walkthrough as structure for consultation. | Focused on confirming or challenging already-held positions. |
The hybrid pattern emerging in Wave 1 practice
In Wave 1 practice, the dominant pattern is a hybrid with explicit routing:
- Top-down for headline matters. Climate change, own workforce, business conduct — matters that are either presumptively material for the sector or established by the undertaking’s prior commitments. Qualitative reasoning suffices, with supporting documentation.
- Bottom-up for the assessment margin. Matters where the answer is not obvious — emerging topics, sector-specific issues, stakeholder-raised concerns, value-chain matters where exposure is uncertain. Full scoring applies.
- Bottom-up for pilot cycles on new topics. When a new disclosure requirement is introduced, the first-cycle treatment uses bottom-up scoring to establish the baseline; subsequent cycles migrate to top-down.
The hybrid is not a compromise. It is a recognition that materiality is not one thing. For established matters, the cost of quantitative reassessment outweighs the benefit. For uncertain matters, the discipline of scoring produces insight that qualitative reasoning cannot.
Top-down is the demanding choice
Top-down mode is the methodologically demanding choice, not the easy one. It requires rigorous written justification where bottom-up produces scoring trails by default.
How the simplified ESRS 1 accommodates both
EFRAG’s December 2025 advice is explicit: neither approach is preferred. The simplified ESRS 1 allows the undertaking to choose, provided three conditions are met. Simplified ESRS 1
The chosen approach is documented. If the undertaking runs a top-down process, IRO-1 disclosure must explain that choice and justify why it was appropriate. Silent method selection is not compliant.
The approach applied is internally consistent. Mixing top-down for some matters and bottom-up for others within a single cycle is permissible — and often necessary — but the logic for which approach applies to which matter must be documented.
Qualitative conclusions are defensible. Where top-down mode concludes a matter is material without quantitative scoring, the reasoning must be articulable to an auditor. “We assessed climate change as material because our prior public commitments, risk register, and strategy all treat it as central” is a defensible qualitative conclusion. “We concluded it was material because we felt it was” is not.
The risk of top-down without discipline
Two failure modes recur:
- Confirmation bias. Top-down validates positions the undertaking already holds. Without a counterweight — active stakeholder challenge, external review, bottom-up probing of the margin — it risks becoming a self-confirming exercise.
- Documentation collapse. When there is no scoring trail, the evidence base is the written reasoning. In organisations where written documentation is thin — or where the DMA is treated as a deliverable rather than a living register — top-down conclusions can lack the articulation that assurance requires.
Both are avoidable. Both are common. Read our four-step DMA guide for execution discipline that supports either approach.
Frequently asked questions
Sources
- European Financial Reporting Advisory Group (EFRAG), Implementation Guidance 1: Materiality Assessment, May 2024.
- European Financial Reporting Advisory Group (EFRAG), Draft Simplified European Sustainability Reporting Standards, technical advice, 3 December 2025.
- Directive (EU) 2026/470, Official Journal of the European Union, 26 February 2026.
