EFRAG (European Financial Reporting Advisory Group), responsible for preparing ESRS reporting standards under the EU Corporate Sustainability Reporting Directive (CSRD), is reviewing the double materiality assessment (DMA) process following extensive feedback from companies.
DMA requires companies to evaluate both their financial risks and their impacts on society and the environment. However, many companies find the process excessively detailed, time-consuming, and costly in practice. In some cases, topics that are clearly “material” (e.g., climate change for oil and gas companies) must still be scored extensively due to procedural requirements.
In response, EFRAG, guided by the European Commission, developed a new approach. The goal is not merely to “simplify” the process but to “clarify” it—enabling companies to provide useful information to stakeholders without facing excessive bureaucratic burdens. According to Wim Bartels, member of the EFRAG Sustainability Reporting Board:
Companies should start the assessment from their business models. For instance, carbon emissions should automatically be considered “material” for manufacturers using raw materials and energy-intensive processes.
Sector practices and company strategies should also be considered. This allows faster identification of topics to include in reporting without scoring each one individually.
For the contentious “gross/net” distinction, the core rule will follow a net approach that considers measures taken. However, significant incidents or issues requiring ongoing measures should still report gross impacts.
Bartels emphasized that the new approach strengthens the principle of “information materiality,” prioritizing insights that genuinely support decision-making rather than creating unnecessary data burdens.
EFRAG plans to finalize this approach by year-end based on feedback from field testing. While double materiality may still remain partly a paper exercise, this clarification aims to provide a more practical framework for both reporting companies and auditors.