In today’s ESG-driven world, companies are under growing pressure to understand and disclose how sustainability issues impact both their financial performance and the world around them. This is where double materiality comes in and at the heart of it lies the EFRAG Double Materiality Assessment.

Whether you are an ESG manager, a compliance lead, or a sustainability officer, understanding EFRAG’s approach is crucial for aligning with European Sustainability Reporting Standards (ESRS) and preparing for CSRD compliance.

Let’s break it down simply and clearly.

What is Double Materiality?

Double materiality means looking at sustainability through two lenses:

Impact materiality: how your business impacts people, society, and the environment.
Financial materiality: how sustainability-related issues impact your company’s finances.

In short, it is not just about how climate change affects your business, but also how your business affects climate change.

This dual lens helps companies prioritize the ESG issues that matter most, not just from a risk standpoint, but also from a stakeholder impact and long-term value perspective.

What is EFRAG and Why Does It Matter?

EFRAG stands for the European Financial Reporting Advisory Group, the technical body behind the development of the ESRS under the Corporate Sustainability Reporting Directive (CSRD).

Their double materiality assessment process is now the foundation for sustainability reporting across the EU. Companies subject to CSRD must use this framework to identify, evaluate, and disclose sustainability issues that are material.

Read more: UBS’s Blueprint for Scaling Sustainability

From Insight to Action: The EFRAG Assessment Process

The EFRAG double materiality process is not a one-time checklist. It is a structured, repeatable cycle designed to help companies make strategic, stakeholder-aligned ESG decisions.

Here’s how it works step by step.

1. Exploration Phase

Start by identifying ESG themes that might be material. This includes scanning frameworks like GRI, SASB, and SDGs, and considering sector-specific risks.

Also, map key stakeholders across your value chain — from employees and customers to suppliers, regulators, and communities. This ensures inclusivity from the beginning.

2. Preparation Phase

This phase focuses on designing your tools:

Create surveys and interview guides
Develop scoring criteria
Align with internal stakeholders on definitions of materiality

The goal is to make your materiality assessment structured, transparent, and ready for data collection.

3. Execution Phase

Now comes the data collection:

Run surveys and interviews with internal and external stakeholders
Gather quantitative and qualitative data
Create a preliminary materiality matrix ranking the importance of each ESG issue across both lenses: impact and financial

This matrix is the first visual step toward prioritizing what matters most.

4. Clustering Phase

Organize your material topics into clusters:

Differentiators – issues that offer a competitive edge
Enablers – foundational but essential (like energy efficiency)
Monitoring areas – topics to keep an eye on, though not critical now

Clustering ensures the insights are actionable and focused.

5. Strategic Value

Transform the clustered insights into strategic ESG priorities.

Ask yourself:

Where can we create value?
What risks should we address immediately?
Which stakeholders need proactive engagement?

At this stage, materiality becomes the engine of resilience, innovation, and stakeholder trust.

What Does EFRAG Consider Material?

A sustainability issue is material if it has a significant impact on:

People (e.g. worker safety, community welfare)
The environment (e.g. emissions, biodiversity loss)
Financial performance (e.g. reputational risks, cost of capital)

EFRAG encourages companies to go beyond compliance and see double materiality as a lens for better decision-making and long-term value creation.

Key Takeaways for Businesses

Impact materiality is about the effects by your company
Financial materiality is about the effects on your company
Together, they provide a complete picture of your sustainability context

Use this framework to guide risk management, investor relations, stakeholder engagement, and ESG reporting.

It helps you move beyond reporting for the sake of it, and toward driving measurable impact.

As sustainability expectations rise, companies cannot afford to guess which ESG issues matter most. The EFRAG double materiality assessment provides a robust, stakeholder-focused pathway to get it right.

When done well, it transforms ESG reporting from a compliance burden into a strategic advantage — helping companies become more resilient, accountable, and aligned with the future.

Stay Ahead with OneStop ESG

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