The first step in addressing the obligations of the Corporate Sustainability Reporting Directive (CSRD) is to focus on double materiality, the key principle of the new sustainability reporting framework established by the European Commission.
This analysis helps you understand which environmental, social, and governance topics are truly relevant to your business, both in terms of their external impacts, and the risks and opportunities they pose internally.
In this guide, we’ll explain what double materiality is, why it is the foundation of the European directive, and how to approach it practically, even if you’re starting from scratch.
What is Double Materiality?
Double materiality is the central principle of the CSRD. It requires companies to analyze sustainability topics from two independent yet complementary perspectives:
- Impact materiality (inside-out perspective): Assesses how the company’s activities affect people, the environment, and society.
- Financial materiality (outside-in perspective): Analyzes how environmental and social factors may influence the company’s financial statements, balance sheet, and overall economic performance.
A topic is considered "material" if it is relevant in at least one of these two dimensions. This is the major shift from the previous NFRD (Non-Financial Reporting Directive): what matters is not only economic impact, but also social and environmental relevance, regardless of the numbers.
Why This is the First Step in Addressing the CSRD
The CSRD doesn’t ask you to report on everything, only on what is material to your company. The principle of double materiality helps you focus on what truly matters, avoiding wasting time, irrelevant data, or generic reports that risk greenwashing.
It is also a formal requirement: the directive mandates that each company must clearly explain the process by which it identifies its reportable topics. No sustainability report can begin without this analysis. It is the foundation for compliance and for initiating an effective and coherent ESG report.
What’s the Difference Between Single and Double Materiality?
In traditional reporting (based on the NFRD), it was sufficient to assess only what was relevant for the company. With the CSRD and its double materiality approach, the scope broadens:
- You must look inward, assessing the risks and opportunities ESG issues pose for the business (financial materiality).
- And you must look outward, evaluating how your operations impact the environment, society, and people (impact materiality).
This approach makes your company more credible, transparent, and competitive, because it shows you're not just focused on profit, but also on social responsibility.
How to Understand What is “Material” for Your Company
A good starting point is to ask yourself:
- What environmental, social, or governance topics do I have a direct or indirect impact on?
- Which ESG aspects could affect my financial performance in the medium-to-long term?
- What matters most to my stakeholders (customers, employees, suppliers, investors)?
If you're an SME in fashion, water use, supply chain impact, and product traceability might be material topics. If you're a tech company, digital accessibility, privacy, and data security are likely key.
Are you in the agri-food sector? Consider land use, water resource management, and labor conditions in the agricultural supply chain as material. In construction, focus on building energy consumption, materials used, and site worker safety.
You can start with the ESRS guidelines, which list key sustainability issues to consider, but you’ll need to tailor them to your business context.
How to Collect Data for the Analysis
For each potentially material topic (e.g., emissions, employee well-being, diversity), you’ll need both qualitative and quantitative data. But don’t worry, you don’t need to measure everything right away.
Start like this:
- List the data you already collect (e.g., training hours, energy consumption, sick days)
- Get help from departments like HR, admin, safety, and quality
- Record the data in a shared file, or better yet, on a platform built for this (see Uyolo below!)
For example, an agri-food SME may already track water consumption per hectare, while a software company may have data on training hours and employee turnover.
How a Double Materiality Analysis Works in Practice
The analysis typically takes place in three stages:
- Definition of the topic universe: create a list of ESG issues to analyze.
- Assessment: evaluate each topic’s relevance based on how the company affects the outside world and how the outside world affects the company, involving internal and external stakeholders.
- Prioritization and mapping: topics scoring high in one or both dimensions are deemed “material.” A matrix is usually created to visualize them.
This process doesn't necessarily require external consultants—you can start simply by involving those with strategic and operational insight within your company.
How to Involve Stakeholders
Stakeholders are all individuals or groups that interact with or are impacted by your company: employees, customers, suppliers, partners, local communities, investors…
Involving them in the materiality analysis gives you a more complete and realistic picture.
How to do this without overcomplicating things? A simple online survey can be enough to ask stakeholders to rate the importance of various ESG topics and provide input to help define your priorities.
To avoid endless email threads and Excel files, use platforms like Uyolo, which allow you to invite stakeholders via a simple link, automatically collect results, and visualize the most mentioned topics in a clear chart.
A Concrete Example of the Analysis
Imagine an SME that produces clothing. During the analysis, they discover that:
- Water and dye use significantly impact the environment.
- New EU rules on labor conditions in the supply chain may affect foreign suppliers and, indirectly, the company.
- Customers are beginning to demand transparency and product traceability.
By crossing these factors, the company identifies three material topics: environmental impact of production processes, supply chain labor conditions, and sustainability governance. These will be included in the sustainability report and monitored through KPIs.
Another SME in digital services identified the following material topics: cybersecurity, environmental impact of cloud servers, and mental well-being of remote teams.
A logistics company, instead, prioritized reducing transport emissions, road safety, and contract conditions for drivers.
How to Read and Use the Double Materiality Matrix
After the analysis, you'll have a matrix, a graph with two axes (impact on the company, impact by the company) and your ESG topics distributed within it.
We recommend starting with 2 or 3 priority topics, setting KPIs, and monitoring the data monthly. Use this information to draft your first ESG report, even if you’re not yet legally required to.
Tackle Sustainability Reporting with the Right Support
Sustainability reporting is no longer optional, it’s a strategic shift mandated by the European Commission, now being phased in with clear deadlines.
Under the CSRD, companies, including many SMEs, must comply with broader criteria and principles than under the old NFRD.
At the heart of this shift is double materiality, which imposes the assessment of financial materiality (risks and impacts on financial indicators like the balance sheet), and impact materiality (the company’s effect on environmental and social issues).
The European Sustainability Reporting Directive, implemented through a growing body of guidelines and obligations, is set to involve thousands of companies, including those with operations across EU countries.
Companies must demonstrate structured and conscious management of sustainability, reporting on key topics in line with common principles, backed by the work of the Financial Reporting Advisory Group and European Financial Reporting Advisory Group (EFRAG).
If you’re wondering where to start, which articles or standards to look at, what the best options are for your company, or how to embark on this journey without slowing down your growth, know that there’s a practical solution.
How Uyolo Helps with Double Materiality and More
If you're an SME and want to avoid wasting time with countless files, Uyolo is made for you. With the platform, you can:
- Launch a step-by-step double materiality analysis
- Customize ESG topics relevant to your sector
- Engage stakeholders with ready-made surveys
- Generate a readable and usable matrix
- Move straight into monthly ESG data collection for reporting
All in one place—ready for the CSRD.
Book a Free Demo with Uyolo
We’ll show you how to simplify every phase of CSRD implementation, from materiality analysis to data collection, stakeholder engagement, and producing a ready, compliant report.
A practical solution to meet this new challenge and turn it into a real opportunity, for responsibility, value creation, and positioning in the new European regulatory landscape.
