With the publication of the revised drafts of the European Sustainability Reporting Standards (ESRS) in July 2025, EFRAG has introduced a substantial simplification of the double materiality approach. This revision is part of the European Commission's mandate under the Omnibus initiative, aimed at making CSRD compliance more feasible—without losing ambition in terms of transparency and sustainability.

What is Double Materiality?

Double materiality is the principle that requires companies to assess and report information from two perspectives:

  • Financial materiality (outside-in): how ESG factors affect the company.
  • Impact materiality (inside-out): how the company impacts the environment and society.

This approach remains a core pillar of the ESRS, but is now applied in a more pragmatic way.

Key Changes Introduced

In the original version of the ESRS (July 2023), the double materiality assessment was complex, unclear, and highly demanding, with:

  • A lack of concrete guidance on how to perform it.
  • The need to analyse a wide range of topics with the same level of depth—even those that might not be material.
  • Challenges in justifying the omission of individual indicators.

Simplification Proposal (EFRAG, July 2025)

1. The process starts with the business model analysis

  • Mandatory starting point: The assessment must begin by analysing the company's business model, strategy, activities, and value chain.

  • This helps focus attention only on impacts or risks that may be relevant given the nature of the business.

For example, an energy company should prioritise topics such as emissions, energy transition, and land use—but not necessarily marine biodiversity or supply chain diversity if these are not applicable.

2. Evidence-based and proportionate assessment

  • Companies are not required to collect exhaustive data for every topic.
  • A reasonable, evidence-based foundation is sufficient to conclude that a topic is not material.
  • Acceptable sources include:
    • Previous assessments (e.g., risk analyses, sector studies)
    • Expert judgement (internal or external)
    • Public or sector data (benchmarking)
    • Previous materiality exercises

The key is that the decision is documented, even if a full technical audit is not conducted for every aspect.

3. Fewer steps, greater clarity

  • Redundant steps such as assigning scores, matrices or detailed classifications for all ESG topics have been removed.
  • Companies may use a simplified or even narrative materiality matrix, as long as they explain:
    • Which topics were considered
    • Which were excluded and why
    • What criteria were used (impact/financial/value chain)

4. No longer required to justify "why it's not reported"

  • In the original version, if a topic or indicator was not considered material, companies had to explain and justify each case individually.
  • Now, it is no longer necessary to justify each indicator separately, as long as the assessment process is documented at the topic level.

Public Consultation Open

The public consultation is open until 29 September 2025. Companies, auditors, investors, and other stakeholders across the reporting ecosystem are encouraged to submit their comments.

Learn more and access the drafts here: Amended ESRS | EFRAG

🤝 Need support with the new ESRS?

At Global Factor, we help organizations understand and apply the requirements of the CSRD and the European Sustainability Reporting Standards (ESRS).

We support companies across sectors in conducting double materiality assessments, defining their sustainability narrative, and preparing reports aligned with the new standards.

👉 Get in touch with us to turn regulatory complexity into a value-creation opportunity.