How to Do a Materiality Assessment: A Step-by-Step Guide

A materiality assessment determines which sustainability topics your organisation must report on. It is the foundation of every credible ESG or sustainability report — and, under CSRD, it is a mandatory, audited process rather than an editorial decision. Get it right and your disclosure is focused and defensible. Get it wrong and you either over-report on immaterial topics or under-report on ones that matter, both of which create problems with investors and assurance providers.

There are two distinct types of materiality in sustainability reporting, and the type you apply depends on which framework you are reporting against. Understanding the difference is the first step.

Financial Materiality vs. Double Materiality

Financial materiality — used by ISSB S1/S2, SASB, and TCFD — asks: which sustainability topics create or erode enterprise value? A topic is financially material if it has the potential to affect the company's cash flows, access to finance, or cost of capital within a defined time horizon. Climate physical risks and transition risks are the most common examples for most sectors.

Double materiality — required by CSRD/ESRS and GRI — adds a second lens: which topics represent your organisation's most significant impacts on people and the environment, regardless of whether those impacts feed back into financial value? A company's impact on local water supplies may be material from an impact perspective even if it carries no direct financial risk to the company.

Companies subject to CSRD must conduct a double materiality assessment. Those reporting under ISSB or TCFD apply financial materiality only. GRI recommends impact materiality. If you report against multiple frameworks, the double materiality lens is the more comprehensive — an impact-material topic is usually also financially material, but not always vice versa.

Step 1 — Define Your Assessment Scope

Before identifying material topics, define the boundaries of your assessment: the entities included (your reporting boundary — typically operational control, matching your financial consolidation), the time horizons you will assess (short, medium, and long term — ESRS requires you to define what these mean for your business), and the value chain scope (upstream suppliers, downstream customers and users, disposal).

ESRS specifically requires value chain coverage: you cannot limit your assessment to your own operations if material impacts or dependencies exist upstream or downstream. This is one of the most common gaps in early CSRD double materiality assessments — companies scope out suppliers and customers to limit the work, then find during assurance that their assessment boundary is indefensible.

Step 2 — Identify Potential Material Topics

Start with the full list of sustainability topics that could be relevant to your sector and value chain. The ESRS sub-topics provide a comprehensive starting list across environmental (E1–E5), social (S1–S4), and governance (G1) areas. SASB's sector-specific materiality maps are a useful cross-reference for financial materiality.

For each potential topic, document:

• Where in the value chain impacts or risks occur (own operations, tier-1 suppliers, downstream users, disposal)
• Which stakeholders are affected and how (employees, local communities, investors, customers)
• What existing data or evidence you have on the topic (prior reporting, incident records, supplier audits, financial risk registers)

Do not pre-filter at this stage. The assessment's credibility depends on showing that you considered the full landscape before applying materiality criteria — not that you started with a short list.

Step 3 — Apply Materiality Criteria and Score

For double materiality, each potential topic is scored on two dimensions:

• Impact materiality: severity × probability of impact (severity includes scale, scope, and irremediability — a large, widespread, irreversible harm scores highest). For negative impacts, actual impacts score higher than potential ones.
• Financial materiality: magnitude of financial effect × likelihood of occurrence, within your defined time horizons. Use your existing enterprise risk framework where possible — this makes the assessment more defensible and reduces duplication.

Topics above a threshold on either dimension are material. You set the threshold — but it must be documented, consistently applied, and justifiable to an assurance provider. A topic that scores just below your threshold requires documentation of why it was excluded, not just silence.

For financial materiality specifically: use quantitative ranges where possible (e.g., potential financial impact of >€1m is material for a €500m revenue company). Qualitative assessments are acceptable but harder to defend.

Step 4 — Engage Stakeholders

Both GRI and ESRS require meaningful stakeholder engagement as part of the materiality process. This does not mean a survey sent to 10,000 customers — it means structured engagement with representatives of groups most affected by your impacts and most dependent on your sustainability performance.

Relevant stakeholders typically include: employees (particularly those in high-impact operations), supply chain representatives for upstream impacts, community representatives for local environmental or social impacts, investors and lenders for financial materiality, and customers where product sustainability is a material topic.

Document the engagement: who was consulted, by what method, what they said, and how their input influenced your materiality scores. Assurance providers will review this documentation. Stakeholder engagement that is not documented is stakeholder engagement that did not happen, from an audit perspective.

Step 5 — Validate with Leadership and Finalise

The completed materiality matrix — showing scored topics, the threshold applied, and the final list of material topics — requires sign-off from senior management or the board sustainability committee. Under CSRD, the board is responsible for overseeing the sustainability reporting process, which includes the materiality assessment.

The output of this step is your material topic list, with supporting rationale for inclusion and exclusion decisions. This list determines your disclosure scope for the reporting year — every ESRS data point and every GRI disclosure is conditioned on materiality.

Step 6 — Translate to Disclosure Requirements

For each material topic, identify the specific data points you are required to report. Under CSRD/ESRS, each topic standard (e.g., ESRS E1 for climate, ESRS S1 for own workforce) specifies mandatory disclosure requirements for topics assessed as material. Under GRI, material topics map to specific GRI topic standards.

The materiality assessment output directly drives your data collection plan for the year: what you collect, from which systems, with what methodology, and to what quality standard. Running the data collection workstream without a finalised materiality assessment is a common sequencing error — you either over-collect and waste resource, or under-collect and scramble before the reporting deadline.

See our detailed review of materiality assessment software for tools that structure and document the full assessment process — and our overview of materiality assessment for a framework-level comparison of financial and impact approaches.