Draft Simplified ESRS: Overview of adjustments to the double materiality analysis

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The final drafts of the revised European Sustainability Reporting Standards (ESRS), published on December 3, 2025, clearly show that the European Financial Reporting Advisory Group (EFRAG) has taken its task seriously and has been able to achieve a significant streamlining of the standards. The changes are extensive and lead to noticeable simplifications – 61% of the mandatory data points have been removed compared to the currently valid version of the ESRS. In our comprehensive article on the new ESRS drafts, you will find an overview of the overall context of the ESRS revision, the process to date and the general measures to simplify the standards. The following focuses on the central changes and clarifications with regard to the double materiality analysis.

The double materiality analysis is considered the “heart of sustainability reporting”. It not only determines which sustainability-related impacts, risks and opportunities (IROs) are material, but also provides the basis for the content of the sustainability report. At the same time, it serves as a strategic management tool: It helps companies to identify relevant developments at an early stage, manage risks in a targeted manner and assess opportunities more clearly.

Against this background, the double materiality analysis plays a special role in the new edition of the ESRS. At the beginning of the revision phase, EFRAG expressly identified it as one of the six central simplification levers, as it has often been perceived as too complex and time-consuming in the past.

The revised requirements now address many of the challenges that companies have experienced in applying the ESRS – from the low added value of complex assessments and interpretive leeway to missing definitions and uncertainties in the audit. Without changing the fundamental logic of the double materiality analysis, the final ESRS drafts create more clarity, consistency and pragmatism. This opens up the possibility for companies to make the process much more efficient without having to compromise on the quality or meaningfulness of the results – at the same time, however, a review and, if necessary, an update of the existing analysis is essential, as individual clarifications can have a direct impact on the results and must be taken into account for regulatory compliance.

Information materiality as a filter instrument for essential data points

One of the central developments concerns the understanding of information materiality. The final ESRS drafts now explicitly emphasize that information is material if its omission or misrepresentation could influence the decisions of the report users.

This means that the DMA is now positioned more clearly than before as a filter instrument: Only material information must be reported. Non-material information is generally omitted in accordance with the newly introduced “Fair Presentation” principle – but can be included voluntarily (e.g. if relevant for rating agencies), provided that it is clearly identified as non-material information.

Overall, the clarifications on information materiality make it easier to derive the report content and strengthen the consistency between the results of the double materiality analysis and the information to be disclosed.

More pragmatic materiality conclusions through the “Top Down” approach

One of the most practically relevant advances is the introduction of the “Top-Down” approach. This addresses the perception of many users that the complex analysis process ultimately often leads to results that were expected from the outset – one reason why the double materiality analysis has so far often been regarded more as a pure compliance exercise than as a strategic instrument.

Companies can now – based on their business model – directly arrive at an assessment of whether certain topics are material or not material. This approach significantly reduces the analysis effort, as no detailed IRO assessments need to be carried out for clearly material or non-material topics. However, the material IROs must still be explained in the report, so that – at least at a higher level – an identification of the material IROs for the topics classified directly as material is still required.

The conclusions must be documented in a way that is comprehensible for auditors, especially if topics are excluded. Overall, the “Top-Down” approach represents a practical instrument that enables noticeable efficiency gains without impairing the quality of the results of the materiality analysis.

Consideration of measures in the assessment of impact materiality

The final ESRS drafts create a clear framework for the extent to which measures may be included in the assessment of actual and potential impacts (the so-called “gross vs. net debate”):

• Actual negative impacts are to be assessed on the basis of their actual occurrence in the reporting year – including the effect of previous measures, but without measures of the same year.
• In the case of potential negative impacts, prevention and mitigation measures may only be taken into account if their effectiveness is plausibly proven.
• Special regulation: Information can also be material regardless of the effectiveness of the measures under certain circumstances if it is relevant to the decisions of users of the sustainability report.

This clarification eliminates a central scope for interpretation, which has so far led to very different assessment approaches in practice. For financial risks, on the other hand, the regulation remains deliberately open – here, companies should continue to fall back on proven methods of financial reporting. Overall, the clarification strengthens comparability and leads to a more uniform understanding of impact assessment.

Introduction of a definition of positive impacts

The term “positive impacts” is also clarified in the final ESRS drafts: Measures that merely serve to reduce own negative impacts or comply with legal requirements are explicitly not considered a positive impact within the meaning of the ESRS. On the other hand, measures that reduce the negative impacts of third parties – for example, if products or services contribute to reducing environmental impacts with which the company itself is not associated – may be classified as positive impacts. This delimitation significantly reduces room for interpretation and counteracts greenwashing. At the same time, it increases comparability between companies and – again in the sense of the Fair Presentation principle – reduces the risk of misleading or over-optimistic presentation.

Further clarifications

In addition to the conceptual adjustments mentioned, the drafts contain a number of further clarifications that are intended to reduce room for interpretation and create greater comparability. These include in particular:

• Annual review: Companies must review their materiality analysis every year and update it in the event of significant changes – for example, in the business model, structure or environment.
• Predefined topic list as a possible input source: The topic list of ESRS 1 AR 16 (now Appendix A) does not have to be considered in its entirety as before, but merely serves as one of several input sources for the double materiality analysis – it is therefore neither fully mandatory nor exhaustive. In the course of the revision, changes were also made to the terminology: “sustainability aspects” give way to the term “topics”, and the designation “sub-subtopics” is eliminated.
• Detailed requirements for aggregation and disaggregation: No relevant relationships may be concealed by aggregating material impacts, risks and opportunities; geographical differentiations and material deviations between the parent company and subsidiaries must be expressly taken into account.
• Pragmatic handling of assessment depth: The three severity characteristics (magnitude, scope and irremediability) and different time horizons do not have to be analyzed separately, provided that this is not necessary for a well-founded assessment.

Recommendations for companies

Companies subject to reporting requirements should adapt their double materiality analysis in accordance with the clarifications as part of the annual update in order to ensure compliance with future regulatory requirements at an early stage. Although the ESRS drafts now published are not yet the final version of the new standards, no major conceptual changes are to be expected.

Anyone who has not yet carried out the process should start it immediately and seek coordination with the auditor in order to secure methodological questions and documentation requirements in good time. The targeted use of simplifications, in particular the “top-down” approach, can help to reduce the effort without impairing the quality of the results. At the same time, it is recommended to use the results strategically – for example, for the development of concrete concepts, measures and targets for the material IROs.

Next steps

The final ESRS drafts will now be submitted to the EU Commission’s legislative process. A further public consultation is planned before the standards are expected to be adopted as a delegated act amending the currently valid Set 1 of the ESRS in mid-2026. The application is scheduled to begin on January 1, 2027, possibly with an option for early application in the 2026 financial year.