Double Materiality, simplified for 2026.

Double materiality is the principle under which an undertaking assesses sustainability matters from two perspectives simultaneously: impact materiality (the undertaking’s actual and potential impacts on people and the environment) and financial materiality (the effects of sustainability matters on the undertaking’s development, performance and position). A matter is material if it meets the threshold for either perspective, or both.

Yes. Directive (EU) 2026/47 retains double materiality as the foundational principle of CSRD reporting. What has changed is the scope of companies in-scope (threshold raised to 1,000 employees and €450 million net turnover), the volume of mandatory datapoints (reduced by approximately 61%), and the flexibility of the DMA process.

Wave 1 undertakings continue under the original ESRS (Commission Delegated Regulation (EU) 2023/2772) for reporting years up to and including 2026. The Simplified ESRS are expected to apply from FY 2027, with voluntary early application permitted for FY 2026 once the delegated act is adopted (expected mid-2026).

The Simplified ESRS 1 permits undertakings to conduct the DMA either by starting from sustainability topics and assessing whether each is material (top-down), or by identifying individual impacts, risks and opportunities and aggregating upward (bottom-up). Qualitative analysis is sufficient where the conclusion is clear.

Under the Simplified ESRS, a full DMA does not need to be repeated annually unless significant changes have occurred in the undertaking’s business model, value chain, or regulatory environment.

Impact materiality relates to the undertaking’s actual or potential impacts on people and the environment (inside-out perspective). It is assessed by reference to severity (scale, scope, irremediability) and, for potential impacts, likelihood. Financial materiality relates to sustainability matters that trigger financial effects on the undertaking (outside-in perspective), assessed by reference to magnitude, likelihood and time horizon.

Small and medium-sized undertakings are not in mandatory scope of CSRD following Directive (EU) 2026/47. However, SMEs that receive sustainability data requests from in-scope counterparties may align to the Voluntary SME Standard (VSME), which includes a simplified materiality assessment. The Detailed Omnibus Directive caps trickle-down requests at the VSME scope for undertakings below 1,000 employees.

The outcomes of the DMA process are disclosed under ESRS 2 IRO-1 (description of the processes to identify and assess material impacts, risks and opportunities) and ESRS 2 IRO-2 (disclosure requirements in ESRS covered by the undertaking’s sustainability statement). These disclosures are required regardless of the materiality outcome of specific topics.