What is double materiality and why does it matter for ESG?

Double materiality is the principle that companies must assess sustainability from two directions at once: how their activities impact people and the environment, and how sustainability issues affect their own financial performance. Both perspectives carry equal weight under EU law. The sections below unpack how double materiality works, who it applies to, and what it means in practice for ESG reporting.

How does double materiality differ from single materiality?

Single materiality asks only one question: how do sustainability issues affect the company’s financial value? Double materiality asks two questions simultaneously: how does the company affect the world, and how does the world affect the company? The EU’s Corporate Sustainability Reporting Directive (CSRD) requires the double lens; frameworks such as the ISSB’s IFRS S1 and S2 use only the single, financial lens.

The distinction matters because the two approaches can produce very different reporting outcomes. A company using single materiality might conclude that its plastic packaging use is immaterial to investors and therefore not worth disclosing. Under double materiality, the same company must also consider whether its packaging choices cause significant harm to ecosystems or communities, and if they do, that impact must be disclosed regardless of its direct financial effect on the business.

The EFRAG–ISSB interoperability guidance confirmed that a properly conducted double materiality assessment under ESRS will, by definition, satisfy the financial materiality requirements of any ISSB-aligned regime. The reverse is not true: financial materiality alone cannot substitute for impact materiality. For companies operating across multiple jurisdictions, this asymmetry is a key strategic consideration, since roughly 21 countries have adopted ISSB standards while the EU requires the broader double standard.

What are the two dimensions of double materiality?

The two dimensions are impact materiality and financial materiality. Impact materiality, sometimes called the “inside-out” lens, covers the actual and potential effects a company’s operations and value chain have on people and the environment. Financial materiality, the “outside-in” lens, covers how sustainability issues create risks or opportunities that affect the company’s financial position, performance, or access to capital.

A sustainability topic is material if it clears the threshold on either dimension. It does not need to satisfy both. When a topic is significant on both dimensions, it is sometimes described as “doubly material.” In practice, the two dimensions are interrelated: impacts that seem purely environmental today often translate into financial risks or regulatory costs over time.

For food packaging businesses and their brand customers, the most immediately relevant topical standards are ESRS E1 (climate change) and ESRS E5 (resource use and circular economy). Under E5, companies must assess whether their packaging choices, material inputs, recyclability rates, waste streams, are material from both directions. A food brand that sources fiber-based trays containing at least 85% less plastic than conventional alternatives generates concrete, quantifiable data points directly relevant to both dimensions of its E5 disclosure.

Which companies are required to conduct a double materiality assessment?

Following the Omnibus I Directive that entered into force in March 2026, mandatory CSRD reporting, and therefore a mandatory double materiality assessment, applies to EU companies with more than 1,000 employees and net turnover above €450 million. This change removed approximately 80% of the companies that would previously have been in scope, but large food manufacturers and food brand owners remain overwhelmingly covered.

For non-EU parent companies, the threshold is EU net turnover above €450 million combined with an EU subsidiary or branch generating more than €200 million. Despite the narrowing, Morningstar Sustainalytics research found that nearly all large packaged food companies remain in scope after Omnibus, because most large food manufacturers already exceed both thresholds.

Smaller suppliers below the mandatory thresholds, including many packaging manufacturers, are not legally required to conduct a formal double materiality assessment. However, in-scope customers will request reliable sustainability data from their supply chains as part of their own Scope 3 and ESRS E5 disclosures. The Omnibus I Directive introduced a value-chain cap that prevents in-scope companies from demanding information beyond the voluntary SME standard from suppliers with fewer than 1,000 employees, but commercial pressure to provide packaging sustainability data remains real and growing.

How is a double materiality assessment carried out?

A double materiality assessment (DMA) follows a structured four-step process set out in EFRAG’s Implementation Guidance 1 (IG 1): mapping organizational context, identifying candidate impacts, risks, and opportunities (IROs), scoring and prioritizing those IROs with stakeholder input, and then translating the results into the required ESRS disclosures.

Step 1: Map the organizational context

The starting point is a clear picture of the business model, value chain, geographies, and stakeholder universe. This contextual mapping determines which sustainability matters are even potentially relevant before any scoring begins.

Step 2: Identify candidate IROs

Using ESRS 1 Annex AR 16 as a reference inventory, the company identifies candidate impacts, risks, and opportunities across all 12 ESRS topical areas, from climate change through business conduct. Post-Omnibus simplifications explicitly encourage a top-down approach based on business model analysis rather than an exhaustive bottom-up review of every data point.

Step 3: Score and engage stakeholders

Impact materiality is measured by severity, comprising scale, scope, and the difficulty of reversing the impact, multiplied by likelihood for potential impacts. Financial materiality weighs the magnitude and likelihood of financial effects. Stakeholder engagement through surveys, interviews, or workshops is required and must be documented; it informs the assessment but does not replace management judgment.

Step 4: Disclose the results

The completed DMA drives the full scope of ESRS disclosures. Under ESRS 2, companies must describe the DMA process (IRO-1), list the disclosure requirements their sustainability statement covers (IRO-2), and explain how material IROs interact with business strategy (SBM-3). Topic-specific disclosures then follow for each material matter using the relevant topical ESRS standards.

What are the most common mistakes in double materiality assessments?

The most common mistake is treating the DMA as a compliance checklist, mapping directly from ESRS topic lists to disclosure requirements without genuinely analyzing which impacts, risks, and opportunities are significant for the specific business. EFRAG’s 2025 implementation review found that more than 40% of the first wave of CSRD reporters lacked a robust DMA, and practitioner reviews suggest that roughly two in three first-cycle assessments lack a defensible scoring methodology.

Beyond the checklist problem, six recurring errors appear consistently across early CSRD reports:

• Blending the two dimensions: Producing a single combined materiality score rather than keeping impact and financial assessments separate, which undermines the integrity of both.
• Undocumented thresholds: Setting materiality thresholds implicitly rather than with explicit, auditable rationale, a significant assurance risk.
• Ignoring the value chain: Focusing the assessment on own operations while under-investigating upstream suppliers and downstream customers, where many of the most significant impacts occur.
• Skipping stakeholder engagement: Relying entirely on internal judgment without consulting affected stakeholders or credible proxies.
• Insufficient governance: Failing to surface material IROs to senior management and supervisory bodies as required under ESRS 2 GOV.
• Excessive granularity without substance: Generating large volumes of documentation that covers every possible topic at a surface level, rather than focusing deeply on genuinely significant matters.

Because limited assurance is mandatory for CSRD sustainability statements, every scoring decision and threshold choice must be traceable. A poorly executed DMA does not just create a reporting gap, it creates direct assurance risk that an external auditor will flag.

How does double materiality affect ESG disclosures and reporting?

The double materiality assessment directly determines the scope of a company’s entire ESRS sustainability statement. Topics assessed as material must be reported using the relevant topical ESRS standards; topics assessed as non-material can generally be omitted, with the notable exception of ESRS E1 (climate), which requires an explicit justification for omission even when assessed as non-material.

In practical terms, this means the DMA is not a preliminary exercise that sits separately from reporting, it is the foundation of the sustainability statement itself. Under ESRS 2, companies must disclose their DMA methodology, the resulting list of material topics, and how those topics connect to business strategy. The sustainability statement must be prepared in a structured electronic format and is subject to external assurance, starting at the limited level.

For food brands and their packaging supply chains, circular economy topics under ESRS E5 and climate topics under ESRS E1 are among the most commonly material. ESRS E5 requires quantitative disclosure on material inputs, including the share of renewable or recycled raw materials, and on material outputs, including recyclability rates in products and packaging. The EU’s Packaging and Packaging Waste Regulation (PPWR), which began applying from August 2026, adds a further layer of regulatory exposure that is both impact-material and financially material for food companies conducting their DMA: all packaging must be designed for recycling, and binding waste reduction targets apply through 2040.

For packaging suppliers, the practical implication is clear. In-scope food brand customers will request documented sustainability data, plastic content, material origin, recyclability credentials, to satisfy their own ESRS E5 and Scope 3 disclosures. Fiber-based packaging solutions that demonstrably reduce plastic use and carry verifiable certifications such as FSC Chain of Custody provide the kind of quantifiable, audit-ready data that makes a food brand’s own double materiality assessment easier to defend.