- A Double Materiality Assessment (DMA) surfaces environmental and social risks embedded in a company’s operations and supply chain
- External impacts on society and the environment can feed back into a company’s financial performance
- DMAs provide an evidence-based structured view of where a business is most exposed, where to invest, and risks to monitor
A double materiality assessment (DMA) has moved from a forward-thinking practice to a formal requirement for many companies. Even where it is not required, a DMA surfaces environmental and social risks embedded in a company’s operations and supply chain, and clarifies which climate, nature, and social trends carry real financial consequences for the business.
S&P, for example, argues that external impacts on society and the environment tend, over time, to feed back into a company’s own financial performance, which is why it builds double materiality into how it analyzes corporate sustainability performance. The World Business Council for Sustainable Development (WBCSD) points out that materiality is increasingly moving beyond a reporting exercise to becoming a strategic decision tool. Sustainability‑related materiality generates signals about a company’s own impacts in the context of stakeholder expectations — that can influence costs, resilience, growth pathways, and access to capital.
What a Double Materiality Assessment Is
A DMA differs from a conventional financial assessment. It examines a company’s risks and impacts through two distinct lenses:
- Impact Materiality (Inside-Out): how a company’s daily operations, supply chain, and products affect local communities, workers, and ecosystems.
- Financial Materiality (Outside-In): how climate disruption, resource constraints, and shifting environmental, social, and governance (ESG) regulations affect a company’s financial outlook.
The Regulatory Landscape
Some companies face a legal requirement to complete a DMA[1]. The EU’s Corporate Sustainability Reporting Directive (CSRD) leads this – requiring companies to report under the European Sustainability Reporting Standards (ESRS), which sets out the double materiality assessment methodology in ESRS 1. The EU has included DMAs in its reporting requirements in response to investor interest and demands from other stakeholders like civil society organizations.
B Lab’s evolving B Corp standards also make materiality a requirement – it can be impact-only or a double materiality assessment – for larger companies seeking certification.
Why It Matters Beyond Compliance
Regulation is one reason to complete a DMA, but not the only one. The assessment gives leadership a structured view of where a business is most exposed, where to invest, which risks to monitor, and which sustainability claims are defensible.
How a Double Materiality Assessment Works
A DMA typically moves through three stages:
- Stakeholder Engagement: executive workshops, focus groups, interviews, and surveys across leadership, suppliers, and key external partners surface how different groups view the company’s risks and impacts.
- Topic Scoring: environmental and social risks across the company’s footprint are evaluated, ranked, and prioritized against both materiality lenses. Common topics include climate change, workforce conditions, water and marine resources. and resource use and circular economy.
- Strategic Integration: the resulting data becomes a plan that satisfies reporting requirements such as CSRD and B Corp standards, and feeds into the broader sustainability strategy.
For example, multinational personal care company, L’Oréal conducted its first double materiality assessment in 2022 in anticipation of complying with CSRD, which it then updated in 2024 to cover the entire L’Oréal Group. The company worked with more than 45 external partners – along with internal experts – to find that all ten ESRS topical standards were material. The most significant ESRS standards for L’Oréal included:
- Resource use and circular economy
- Pollution
- Consumers and end users, and product safety
A company’s first DMA can take 3 to 6 months, depending on scope, stakeholder engagement, and data availability. A more streamlined process typically starts with executive workshops to identify an initial list of strategic priorities, which are then validated through stakeholder engagement.
The DMA should be updated at least every two to three years – with annual touchpoints for reporting. Materiality is dynamic, as what is most important to a company from a financial and impact standpoint can change over time. Updating a DMA keeps it relevant and helps a company stay audit-ready.
3-Step Team Readiness Checklist
To get ready for your first DMA and be as efficient as possible, companies should take the following steps:
- Assemble a Cross-Functional Task Force
Pull in leads from Legal, Finance, Risk, Operations, Procurement, and HR. A proper DMA relies on operational data and cross-functional perspective.
2. Gather Existing Risk and Impact Data
Consolidate your current Enterprise Risk Management files, supply chain audits, carbon accounting, and past stakeholder feedback.
3. Establish Your Reporting Boundaries
Identify the exact standards you need to hit and establish clear boundaries for the project: defining the extent of a company’s direct operational control and the impacts that occur upstream and downstream of that control.
Companies often find they can be more efficient working with an outside consultant to lead them through the process. If you need assistance with your first DMA or to update your existing DMA, Pure Strategies can help!
[1] EU companies with ≥1,000 employees and €450m in revenue are subject to the law. Non-EU companies are subject to CSRD if the parent-company group has €450m in revenue in the EU the last two consecutive years and at least one EU subsidiary or branch has revenue of €200m in revenue in the preceding year. EU companies must start reporting in 2028, while non-EU companies must comply in 2029.
