What is a double materiality assessment in sustainability reporting?
A double materiality assessment is the process a company uses to decide which sustainability topics belong in its report. Each topic is tested in two directions: the impact the company has on people and the environment, and the financial Risks and Opportunities the topic creates for the company. A topic is material if it passes either test.
By Mike Kelly, Chartered Director, Nemetan. Last updated 22 September 2026.
Under the EU's European Sustainability Reporting Standards (ESRS), the assessment decides what goes into the sustainability statement. The UK's sustainability reporting standards (UK SRS) are based on the ISSB standards, which use financial materiality only, so a UK company running a full double materiality assessment is usually doing so because it reports in the EU or has EU customers who ask for one.
What are the two directions of materiality?
Impact materiality asks whether the company has, or could have, a significant effect on people or the environment, through its own operations or anywhere in its value chain.
Financial materiality covers the other direction. A sustainability matter is financially material if it creates Risks or Opportunities that could reasonably be expected to affect the company's cash flows, financial position, performance, cost of capital or access to finance.
How do you carry out a double materiality assessment?
- Map the business, its value chain and the people affected by it.
- Draw up a long list of sustainability matters, using the ESRS topic list as a starting point, and identify the impacts, Risks and Opportunities attached to each one.
- Score each impact for severity and likelihood, and each Risk or Opportunity for likelihood and the size of its financial effect.
- Set thresholds, decide what is material, and document the result so that an assurer can follow how each decision was made.
How are Opportunities identified in a double materiality assessment?
ESRS gives a clear test for whether an Opportunity is material. It says much less about how to find the candidate Opportunities to test in the first place, while the Risk side can draw on decades of enterprise risk management practice.
The standard does ask for balance. ESRS 1 states that material risks and opportunities "shall receive equal attention", and that "the exercise of prudence does not allow for the understatement of opportunities or the overstatement of risks" (ESRS 1, Appendix B, QC 8).
In a 2026 study of the published statements of 40 large companies reporting under mandatory ESRS, Nemetan counted 455 Risks disclosed against 196 Opportunities. The count covers what was disclosed and says nothing about what those companies found or went looking for.
Sustainability Opportunity Discovery is the name Nemetan gives to the step that finds candidate Opportunities before they are assessed. It is defined as the systematic search for candidate Sustainability Opportunities, conducted before and separately from any assessment of their materiality, and producing an auditable record of what was searched, what was found and what was set aside.
What does the output of a double materiality assessment look like?
The usual output is a list of material topics with the impacts, Risks and Opportunities under each one, often drawn as a matrix with impact on one axis and financial effect on the other. ESRS does not require a matrix. It does require the company to describe the process it used (ESRS 2, IRO-1) and to set out its material impacts, Risks and Opportunities (ESRS 2, SBM-3).
Read the full definition of Sustainability Opportunity Discovery, with the research behind it.