ESRS Double Materiality Assessment: Key Changes in the Latest ESRS Exposure Draft

The Omnibus Simplification Package was proposed in 2025 to lessen the complexity and reporting burden of the CSRD in response to the positive feedback from businesses and EU member states. On March 18, 2026, the Omnibus I came into effect, marking a significant shift in EU sustainability reporting. The 2023 ESRS established an ambitious but highly demanding reporting architecture that many companies struggled with exhaustive double materiality assessments as it requires:

• Highly granular assessments across every sustainability topic,
• Extensive narrative requirements,
• Value chain data collection challenges,

The 2026 draft responds directly to these concerns by making DMA more practical, scalable, and decision-useful while preserving the core objectives of transparency and accountability. This revision is not only a simplification but a strategic reframing of the DMA, aligning the updated guidance more closely with original materiality and risk assessments used to identify risks and opportunities.

The ESRS Double Materiality Assessment (DMA) remains the foundation of sustainability reporting under the European Sustainability Reporting Standards.

This blog explores the key changes in the DMA and how companies can prepare by adapting their assessment methodologies, governance processes to the revised DMA requirements.

The key changes in simplified Double Materiality Assessment (DMA) process

1. Explicit recognition of the top-down DMA approach

One of the most significant clarifications in the draft is the explicit recognition of a top-down approach to materiality assessment, alongside the continued possibility of using bottom-up or hybrid methodologies.

Companies may determine material topics based on their strategy, business model, sector, geography and value chain characteristics, without first conducting an exhaustive assessment of every individual impact, risk and opportunity (IRO).

Based on this assessment if materiality is evident companies can justify a materiality topic by avoiding a detailed analysis of every individual IRO. For sustainability teams this creates a significant shift from proving materiality by exhaustive assessment to a reasonable and supportable business judgment.

The reporters can also adopt bottom-up approach for some topics with the identification and assessment of individual IRO and then aggregates them into material topics. The new draft gives flexibility for companies to use either approach or a combination of both. In practice, many companies prefer to adopt a hybrid model where a top-down analysis is used to identify priority areas, followed by bottom-up validation for high-risk or uncertain topics.

2. Stronger materiality filter for non-material topics

Under the Latest ESRS Exposure Draft non-materiality can be justified through a structured and reasonable assessment rather than exhaustive analysis. ESRS draft explicitly mentioned that the reporting company shall not disclose information in DR or datapoint if that information is not material and the same principle applies to entity-specific disclosures.

The draft also reinforces that all disclosure requirements are subject to the materiality principle. Companies are not required to disclose information prescribed by a disclosure requirement where that information is not material. This places materiality at the centre of sustainability reporting and reduces the risk of producing disclosures that are not decision-useful.

Companies are not required to assess every possible IRO across all areas of their operations and their value chains. Instead, the focus must be placed on areas where material IRO's are likely to arise, based on their strategy, business model, sectors, geographies, business relationships, and other relevant factors.

Instead, the justification for non-materiality can be based on:

• The nature of the business model,
• Sector-specific information's,
• Geographic exposure,
• Existing risk management and due diligence processes,
• Stakeholder engagement outcomes,
• Peer and industry benchmark,
• With available scientific and statistical information.

The assessment should be supported by reasonable and supportable evidence available at the reporting date, without undue cost or effort.

Organizations benefits to make informed and supportable materiality decisions without taking unnecessary analysis, while still maintaining transparency and accountability in the reporting process.

3. Periodicity of the double materiality assessment

Under the revised ESRS, companies are no longer expected to redo their DMA from scratch during every reporting cycle. Instead, at each reporting cycle organizations can assess whether any significant changes have occurred that could affect the conclusions of their previous materiality assessment. If such changes are identified, the company should review and update the assessment accordingly. The focus shifts from repeating the assessment annually to evaluating whether significant changes have occurred that could affect previous materiality conclusions.

These changes may come from different areas of the business and its environment. For example, shifts in operations, changes in business structure, new or evolving business relationships, by an updated understanding of impacts and risks may also trigger a reassessment on DMA.

This relief to companies avoids repetition of DMA from scratch while ensuring that the DMA remains aligned with the company's current business landscape. At the same time, it places the importance of internal monitoring systems, because companies need to be able to justify why their previous conclusions still hold.

In practice, this brings DMA closer to how risk frameworks already operate in many organisations. Assessments are updated once the underlying risk landscape changes, rather than because a reporting cycle requires it.

4. Aggregation and disaggregation of material impacts, risks and opportunities

The Latest ESRS Exposure Draft provides greater clarity on how companies should determine the appropriate level of aggregation and disaggregation when conducting and reporting their Double Materiality Assessment (DMA). The objective is to ensure that sustainability information reflects where significant differences in impacts, risks, and opportunities exist, without obscuring material information through excessive aggregation.

To achieve this, companies should consider their specific facts and circumstances when deciding how information is assessed and presented. Depending on the nature of the business, material impacts, risks, and opportunities may need to be distinguished by:

• Topic,
• Sector,
• Subsidiary,
• Geography,
• Asset or activity type.

The drafts also highlights that the level of disaggregation used in disclosures reflects that provides the most relevant information to users. This may include:

• Reporting by individual topic,
• Grouping by category of impacts, risks, and opportunities
• Or reporting at the level of individual impacts, risks, or opportunities where needed.

The draft also clarifies that disclosures may be presented either at topic level or at the level of individual impacts, risks and opportunities, depending on which approach provides the most decision-useful information to report users.

Draft highlights that aggregation should not hide any material information, and disaggregation must provide the most decision-useful level of detail for users.

Importantly, companies have flexibility in how they structure the materiality assessment itself versus how they report results. It promotes a balanced approach where disclosures remain clear, decision-useful, and representative of the actual sustainability risks and impacts across the organization and its value chain.

5. Reduced documentation burden and more proportionate reporting

The new ESRS draft significantly reduces the documentation burden associated with the Double Materiality Assessment. Rather than providing highly detailed and standardised descriptions of every step followed under ESRS 1, companies are expected to provide a concise, entity-specific explanation of how the assessment was conducted and how materiality conclusions were reached.

The focus is shifting away from boilerplate disclosures that simply restate the ESRS methodology. Instead, practitioners should concentrate on describing what is relevant to their own process how material topics were identified, what key judgments were applied, and how conclusions were reached. Detailed documentation of every possible impact or opportunity is no longer required rather only for those that are material and identified through the assessment process need to be reflected.

The new draft ESRS shifts from heavy reliance on IRO scoring and places importance on reasonable, evidence-based judgement. Organizations still need to consider factors such as severity, likelihood, scale, scope, and irremediability, but now they have more flexibility in how they reach conclusions. In practice, this allows companies to streamline reporting, reduce administrative effort, and focus on explaining key decisions rather than replicating generic regulatory language.

6. Materiality becomes the primary reporting filter

One of the most important simplifications introduced in the draft is the stronger emphasis on materiality as the primary reporting filter. Companies are expected to disclose only information that is material to understanding their sustainability-related impacts, risks and opportunities.

This means that disclosure requirements should not be treated as a checklist. Instead, organizations should focus on providing information that is relevant and decision-useful to users of sustainability statements. The change supports more focused reporting while reducing unnecessary disclosure of immaterial information.

What should companies do now and get ahead of the changes

To make the most of the ESRS 2026 simplifications, companies should focus on the following actions:

• Simplify your DMA methodology by using the new top-down approach and opt for bottom-up approach where topic needs deeper analysis.
• Thoroughly review existing information and stakeholder insights instead of creating new assessments where sufficient evidence already exists.
• Focus resources on high-risk and high-impact areas where deeper analysis adds value, rather than attempting to assess every possible impact, risk, and opportunity.
• Review and validate material and non-material topics using reasonable and supportable evidence.
• Prepare for assurance requirements by maintaining a clear audit trail of assumptions, methodologies, evidence sources, and management judgments.
• Use DMA as a strategic decision-making tool, helping leadership prioritize sustainability risks, opportunities, investments, and long-term business resilience rather than treating it solely as a reporting exercise.

DMA becomes strategic reporting tool

The Latest ESRS Exposure Draft marks a clear shift toward a more efficient and practical approach to the Double Materiality Assessment (DMA). While the core principle of double materiality remains unchanged, companies now benefit from a clearer top-down approach. This allows organizations to assess materiality based on their business model, sector, geography, and value chain, rather than carrying out highly granular assessments for every individual impact, risk, and opportunity.

At the same time, the flexibility to combine top-down and bottom-up approaches makes the process more adaptable and efficient in practice.

More importantly, the revised ESRS encourages companies to move beyond treating DMA as a compliance exercise. The most effective organizations will integrate materiality assessments into existing processes such as risk management, strategic planning, governance, and value chain oversight.

Instead of producing a DMA purely to meet reporting requirements, companies can use it as a tool to identify emerging risks, prioritize sustainability initiatives, strengthen resilience, and support long-term value creation.

Overall, the ESRS 2026 simplification makes DMA more streamlined, scalable, and decision-useful helping companies focus on meaningful sustainability insights rather than administrative burden.

Important note: The changes discussed in this article are based on the latest ESRS Exposure Drafts published by EFRAG and remain subject to consultation, review and final adoption by the European Commission. Organizations should monitor future developments before making significant changes to their reporting processes.

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