What is DMA?

The double materiality assessment is a dual-lens approach that:

i. First, assesses the impacts of a company’s actions on natural and human resources, considering both positive and negative impacts. This “inside-out” view focuses on the company’s actual or potential short, medium and long-term impacts on people and the environment that are directly linked to its operations and its value chain.

ii. Second, evaluates how sustainability risks and opportunities could potentially influence a company’s financial performance. This “outside-in” view focuses on how sustainability matters may pose either a prospective material risk or opportunity that could affect a company’s financial performance and position over the short, medium and long-term.

Unlike traditional materiality, which focuses solely on financial risks, double materiality incorporates a broader spectrum of impacts.

Why materiality matters for climate disclosure?

In 2019, the European Commission formally cited double materiality as the approach organizations should take to identify and manage ESG risks, including climate risks. This laid the foundation for its incorporation into the Corporate Sustainability Reporting Directive (CSRD) and the associated European Sustainability Reporting Standards (ESRS).

Double materiality was further elevated at COP26, the United Nations Climate Change Conference that took place in Glasgow in 2021. The concept has also gained traction among climate-conscious investors who want to minimize the adverse impacts of their financing activities. Certain investors further believe that a double materiality approach provides a more comprehensive understanding of a portfolio company’s true exposure to climate risks and opportunities

Additionally, EFRAG (the EU’s technical adviser on ESRS) has published practical implementation guidance on how to perform a materiality assessment under the ESRS/CSRD framework underscoring that firms must now follow more structured, documented processes for double materiality.

This shift elevates ESG reporting from being a voluntary, narrative-focused exercise to one anchored in structured, dual-perspective assessments combining business-relevant financial risk/opportunity with societal and environmental impact.

Types of Materiality within DMA

1. Impact Materiality

Sustainability matters, which “pertain to the undertaking’s material actual or potential positive or negative impacts on people and the environment over the short, medium and long- term “(including products, services and business relationships). This indicates the company’s contribution to sustainable development.

2. Financial Materiality

- Risk- Uncertain ESG events or conditions, which “have a material negative influence or could reasonably be expected to have a material negative influence on the undertaking’s development, financial position, financial performance, cash flows, access to finance or cost of capital over the short, medium and long-term”.

- Opportunity- Uncertain ESG events or conditions, which “have a material positive influence or could reasonably be expected to have a material negative influence on the undertaking’s development, financial position, financial performance, cash flows, access to finance or cost of capital over the short, medium and long-term”.

Key Stakeholders in DMA

The first step is to identify all stakeholders who are relevant to your business. These may include internal stakeholders (employees, management, shareholders) and external groups (customers, suppliers, communities, regulatory bodies, NGOs, and environmental stakeholders). It’s important to consider both direct stakeholders, who are immediately affected by your business activities, and indirect stakeholders, who may be impacted by long-term outcomes such as climate change or social inequality.

Once identified, stakeholders should be prioritized based on:

i. Influence: How much power or influence they have over your business decisions? And how much influence do you have on the stakeholders?

ii. Interest: How much are they impacted by or interested in your business?

iii. Knowledge: How well do you know this stakeholder and its needs?

A simple stakeholder matrix, mapping relevance (influence and interest) against knowledge, can help visualize which stakeholders should be engaged more intensely and whose feedback might carry more weight. 

DMA in Practice: How It Helps Companies

Beyond conceptual clarity, DMA serves concrete strategic and governance functions. A recent industry write-up summarises benefits as: improved risk management, regulatory and compliance readiness, better investor communication, competitive advantage, and long-term strategic alignment of ESG and business goals.

Some real-world examples:

1. Vardhman Textiles has undertaken a double materiality assessment to identify significant ESG issues across its value chain and use the findings to shape its sustainability strategy.

2. Schaeffler India Limited in 2024 carried out its first comprehensive double materiality assessment covering environmental, social and governance topics across operations, supply-chain, product lifecycle and stakeholder interactions.

3. Within global firms via surveys such as KPMG’s 2024 “Survey of Sustainability Reporting” approximately 42% of 5,800 companies surveyed globally now use double materiality for their reporting, indicating growing mainstreaming of the approach 3.

These cases show that DMA is no longer academic theory as it is being operationalised even in Indian corporates, as part of their sustainability governance and reporting frameworks.

DMA and the Rise of ESG Reporting in India

1. According to a 2022 analysis of ESG disclosures in India, though the formal “double materiality” framework originates in Europe, many Indian companies are increasingly aligning their ESG disclosures with its logic reporting both how ESG issues impact their business and how their business impacts environment and society .

2. According to a recent 2025 article by KPMG in India, ESG is becoming embedded in long-term corporate strategy in Indian firms. CEOs in India expect significant returns from ESG investments within a five to ten-year horizon .

Thus, for many Indian firms voluntarily adopting a full DMA (impact + financial) can offer a differentiating edge: better alignment with global ESG expectations, improved risk management, and readiness for future regulatory developments (domestic or global).

Embedding DMA in Your ESG Strategy: What It Means for Indian Firms

For Indian firms, especially those like your clients (ESG-rating, external reviewers, social/ sustainability-linked bond issuers), embracing DMA offers several strategic advantages:

1.  It aligns reporting with evolving global norms (CSRD/ESRS)

2.  It provides a structured framework to prioritise ESG issues, enabling focused resource allocation, rather than broad but shallow ESG disclosures.

3.  It supports better risk management, by integrating ESG risks and opportunities into enterprise risk frameworks

4. It boosts transparency and stakeholder trust, not just among investors, but also regulators, communities, supply-chain partners strengthening long-term legitimacy.

Conclusion

Double Materiality Assessment represents a paradigm shift in sustainability reporting, from narrow financial risk disclosure to a far richer, two-dimensional perspective that reflects both what companies do to the world and what the world (and ESG trends) does to companies.

For Indian firms, large or small, voluntarily embracing DMA is no longer a “nice-to-have.” It can significantly improve strategic clarity, risk management, investor confidence, and long-term value creation, all while ensuring that ESG remains integral to business rather than a side-show.

Given rising global and domestic interest in ESG, and your firm’s mandate to provide ESG rating and methodology-driven external reviews, integrating DMA robustly into your services can position you as a leader helping Indian enterprises navigate this evolving ESG landscape.