Double materiality is CSRD's most contested requirement, and the variance in how it is being interpreted and implemented across mid-market companies is significant. Compliance teams that spoke with large consultancies in 2024 received very different scoping advice from those that worked with specialist ESRS advisors or attempted the process in-house. Some were told to run a twelve-month multi-stakeholder engagement program involving hundreds of external participants. Others completed a documented assessment in six weeks with an internal workshop and a structured supplier questionnaire.
Both approaches can produce a legally defensible assessment. The question is whether the depth of the process is proportionate to the company's size, sector exposure, and the nature of its impacts on people and the environment. ESRS 1 does not mandate a specific methodology — it mandates an outcome: a documented, defensible determination of which sustainability topics are material and therefore require disclosure.
This article explains what ESRS 1 actually requires, how EFRAG's implementation guidance translates into a practical IRO scoring process, and what the minimum defensible standard looks like for a 400-500 person industrial company without a dedicated sustainability team.
The two dimensions: impact materiality and financial materiality
CSRD's double materiality framework is defined in ESRS 1 (paragraphs 43-67). It requires companies to assess sustainability topics across two orthogonal dimensions and to disclose a topic if it is material from either perspective.
Impact materiality asks: what are the company's actual and potential positive and negative effects on people and the natural environment, through its own operations and through its upstream and downstream value chain? The assessment is from the perspective of the affected parties — workers in the supply chain, local communities near facilities, ecosystems impacted by pollution or resource extraction. Climate change impacts, labor rights in Tier 1 and Tier 2 supply chains, water pollution from manufacturing processes, biodiversity loss from land use — these are assessed for their severity and scale as environmental or social impacts, independent of their financial consequences for the company itself.
Financial materiality asks: what sustainability-related risks and opportunities could have a material effect on the company's financial position, cash flows, or access to capital over the short, medium, or long term? Physical climate risks (flooding of manufacturing facilities, supply chain disruption from extreme weather), transition risks (carbon pricing, changes in customer procurement preferences, stranded assets), and sustainability-related opportunities (market access for verified low-emission products, energy cost savings from efficiency improvements) — these are assessed from the perspective of the investor or lender assessing the company's financial resilience.
The critical architectural point: a sustainability topic is material for CSRD disclosure if it is material under either dimension. You do not need both to trigger a disclosure obligation. A company with material Scope 3 emissions in its value chain (impact material) may not yet face material financial risk from carbon pricing if its products are not traded on carbon-regulated markets — but the impact materiality alone is sufficient to require ESRS E1 disclosure.
What ESRS 1 actually requires from the process
ESRS 1 General Requirements sets the procedural framework. Paragraph 53 requires companies to identify impacts, risks, and opportunities (IROs) through a process that is systematic, covers the full value chain, and is informed by engagement with affected stakeholders and users of sustainability information.
The key word is "informed by" — not "determined by." Stakeholder engagement is an input to the assessment, not the assessment itself. Management applies judgment to the stakeholder inputs, scores IROs against materiality criteria, and makes a documented determination. This distinction matters for right-sizing the process for a mid-market company.
EFRAG's implementation guidance document IG 1 (Materiality Assessment) describes a four-stage iterative process:
- Context setting: Understand your business model, operating geography, and value chain. Map the sustainability topics that are potentially relevant to your sector. The starting point is EFRAG's sector-specific guidance or, in the absence of finalized sector standards, the full ESRS topic list plus sector benchmarking from peer disclosures.
- Identification of IROs: For each potentially relevant sustainability topic, identify the actual and potential positive and negative impacts, financial risks, and financial opportunities that apply to your specific company. Internal workshops with operations, procurement, finance, legal, and HR are the standard input mechanism. The output is an IRO longlist — typically 40-80 IROs for a mid-size industrial company before scoring.
- Materiality assessment and scoring: For impact materiality, assess each IRO on severity dimensions: scale (how widespread is the impact), scope (how severe is the harm to affected parties), and irremediability (how reversible is the impact), multiplied by likelihood. For financial materiality, assess magnitude (expected financial impact in €) and likelihood over the relevant time horizon. IROs scoring above threshold are material; below-threshold IROs with rationale are documented as not material.
- Determination of reportable topics: The scored IRO list maps to ESRS topic standards. Climate change material (E1) → mandatory ESRS E1 disclosures. Water material (E3) → ESRS E3 disclosures. Own workforce material (S1) → ESRS S1 disclosures. Topics below the materiality threshold are explicitly excluded in the disclosure, with the assessment rationale documented.
What "good enough" actually means for a mid-market company
The proportionality principle in EFRAG IG 1 is explicit and worth quoting directly: "The depth and breadth of the [materiality] process should be proportionate to the undertaking's size, nature and complexity of its activities, its impacts and its stakeholder relationships."
For a 400-person industrial manufacturer without a dedicated ESG function, a defensible first-year assessment looks like this:
Internal workshop: 2-3 days. Bring together representatives from finance, operations, procurement, HR, legal, and ideally the CFO or COO. Use a structured IRO longlist derived from ESRS topic standards and sector peer disclosures as the working document. The workshop outputs scored IROs with management sign-off. This is the core of the assessment — external stakeholder input refines it, but does not replace it.
External stakeholder engagement: focused, not exhaustive. Structured questionnaires to your top 5-8 suppliers and 3-5 major customers, asking about their own sustainability priorities and their assessment of your company's impacts. This input feeds into the impact materiality scoring for supply chain topics. The questionnaire can be completed in writing — you do not need formal workshop sessions with every major supplier in year one.
Scoring matrix with defined thresholds. The materiality threshold must be explicit and documented. A common approach is a 2x2 or 3x3 scoring grid with defined scale/scope/likelihood inputs and a threshold score above which topics are considered material. The threshold definition is a management judgment call — but it must be made explicitly and defensibly, not implied by which topics were convenient to include.
Exclusion rationale documentation. For every ESRS topic not disclosed, the assessment must include a documented rationale for why it is not material. "Biodiversity not material for a precision engineering manufacturer with no land use activities in sensitive areas — impact scope is low, no operations in IUCN Protected Areas or Key Biodiversity Areas" is a defensible exclusion. "Biodiversity not assessed" is not.
Consider a plausible mid-market scenario: a 480-person packaging manufacturer in the Netherlands. Their double-materiality assessment completed in seven weeks: two weeks for context setting and IRO longlist preparation, three weeks for internal workshops and supplier questionnaire distribution, two weeks for scoring matrix finalization and sign-off. The output: ESRS E1 (climate) material on both dimensions, ESRS E2 (pollution) material for impact (wastewater discharge), ESRS S1 (workforce) material for financial dimension (labor market risk in specialty manufacturing), ESRS G1 (business conduct) not material. Four material topics, clear ESRS standards in scope, five ESRS topics excluded with documented rationale.
The asymmetry between impact and financial materiality assessments
One practical challenge is that impact materiality and financial materiality require different evidence bases and involve different internal teams. This asymmetry is often underappreciated in materiality process design.
Impact materiality assessment benefits from operational input — people who know the manufacturing processes, the supplier geography, the waste streams, the workforce conditions. Financial materiality assessment benefits from finance and risk management input — people who can size transition risks against the balance sheet, model carbon price exposure against cost structures, and assess supply chain concentration risk.
Running both assessments in a single undifferentiated workshop frequently results in either the impact dimension or the financial dimension being undertreated. A better design: separate break-out sessions for each dimension, feeding into a combined scoring session where the two perspectives are consolidated by a facilitator who understands both ESRS 1 requirements.
How the materiality output drives your data collection plan
The materiality assessment is not the end of the CSRD process — it is the gating document that determines what data you need to collect. Once the assessment is complete, you can map each material ESRS topic to its specific disclosure requirements and data sources.
For most mid-market industrial companies, ESRS E1 (climate change) is material on both dimensions. The E1 data requirements are then fully in scope: Scope 1, 2, and 3 GHG inventory (ESRS E1-6), energy consumption and mix (ESRS E1-5), climate-related targets (ESRS E1-4), transition plan (ESRS E1-1), and physical and transition risk exposure (ESRS E1-9). These requirements map directly to ERP data sources, making the data collection plan concrete rather than abstract.
If ESRS E2 (pollution) is material, the data requirements shift to emission factors for regulated pollutants, wastewater discharge volumes, and pollution control equipment investment — data that typically lives in environmental management systems rather than the ERP.
If ESRS S1 (own workforce) is material for financial reasons — workforce availability risk, wage inflation exposure — the required disclosures include headcount demographics, turnover rates, and wage distribution data from HR systems.
The materiality output should produce a data collection map before any data is gathered. Collecting all possible sustainability data before knowing what is material is the pattern that produces the €240,000 consultancy engagement — most of which is spent collecting data for topics that ultimately are not material.
Greenopsiq's gap analysis dashboard maps your ESRS E1 and E2 data requirements to available ERP and expense data sources immediately following materiality assessment completion. The output shows which disclosure requirements are addressable with existing system connections and which require new data collection efforts. Request a walkthrough to see the data mapping output for a company profile similar to yours.
