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ESRS Materiality Analysis in Medium-Sized Businesses

November 15, 2023

News from the AGN EMEA Accounting, Auditing & Education Committee (AAEC)

The materiality analysis is the “linchpin” of future Corporate Sustainability Reporting Directive (CSRD)/European Sustainability Reporting Standards (ESRS) sustainability reporting.

The scope of the future sustainability report depends crucially on which sustainability aspects are on the so-called “material topic” list at the end of the materiality analysis. Furthermore, this list provides the basis for the development of a company-specific sustainability strategy. 

Due to the complexity of the requirements of both ESRS 1 (General Requirements) and the current EFRAG draft “Materiality Assessment Implementation Guidance (MAIG)”, it is important for SMEs to implement these requirements in a pragmatic yet standard-compliant and audit-proof manner. 

The Principle of Materiality

The ESRS consist of 12 standards, 82 Disclosure Requirements (DRs) and 1178 individual reporting requirements (so-called data points). So much for the bad news. The good news is that most of these reporting requirements are subject to materiality. 

Only the data points that relate to the list of “material topics” must be reported on (only the DRs and data points of ESRS 2 – incl. the “related to ESRS 2 IRO-1” DRs in the topic-related standards – are considered “always mandatory”). The task of the materiality analysis is to identify these “material topics”.

From the “Long List” to the “Material Topic List

The starting point for the materiality analysis is (mandatory!) a list of the fundamentally relevant sustainability aspects (so-called “long list”), which are presented in tabular form in ESRS 1.AR.16. However, both ESRS 1 and the MAIG make it clear that this list must be adapted to include sustainability aspects specific to the industry/company. 

Depending on the industry/company, the “long list” contains approximately 100 potentially relevant sustainability aspects. Examples of sustainability aspects are climate change, energy intensity, resource consumption, water consumption, appropriate remuneration, and gender equality.

As part of the materiality analysis, the “long list” is now successively shortened in several steps. In practice, a so-called “medium list” should first be derived on the basis of environmental analyses, peer group comparisons, expert surveys and the involvement of internal and external stakeholders.

The remaining sustainability aspects are then assessed and prioritized individually in accordance with the principle of dual materiality, both from the perspective of impact materiality (inside-out perspective) and financial materiality (outside-in perspective). Once a company-specific materiality threshold has been defined, the result of the materiality analysis is a list of “material topics”, usually referred to as a “short list”. This forms the basis for determining the data points to be reported in accordance with the topic-related ESRS.

Appendix E to ESRS 1 contains a “flowchart for determining disclosures under ESRS.” This shows that materiality considerations are possible at three levels:

  • At the standard level: to the extent that a standard is assessed as not material, this automatically also applies to all DRs (with the exception of “related to ESRS 2 IRO-1 DRs) and data points of this standard;
  • At the level of the DRs (to the extent that a DR is assessed as not material, this also automatically applies to all data points of the DR) and;
  • At the level of individual data points.

Focusing On What Is Essential

There is no question about it: SMEs, in particular face major challenges in connection with first-time sustainability reporting based on the CSRD/ESRS. However, since the majority of the reporting requirements are subject to materiality, it is particularly important to identify those topics in the materiality analysis that are actually relevant for the respective company from the perspective of both “impact materiality” and/or “financial materiality”. Thus, the materiality analysis is the decisive lever for scaling the reporting obligations.

The Materiality Analysis in 6 Steps

1. Creation of the “long list“
Based on ESRS 1.AR 16. addition of industry/company-specific sustainability aspects

2. Derivation of the “medium list“
Interviewing internal and external experts, peer group comparisons, involvement of internal and external stakeholders, etc.

3. Assessment of impact materiality
Inside-out perspective

4. Assessment of financial materiality 
Outside-in perspective

5. Determination of threshold value
Company-specific determination with reliable documentation

6. Finalization of the “material topic list”
If necessary, visual presentation as materiality matrix

Should you ever lose track of the big picture, my colleagues and I from the AGN EMEA Accounting, Auditing & Education Committee (AAEC) will be happy to help and guide you safely through the IFRS and CSR jungle. As a member of AGN International, you can use the AGN AAEC Helpline at any time or contact me by email at or by mobile phone at +49 173 8710322.

Happy accounting and stay sustainable,


Carsten Ernst
Managing Partner
Wirtschafts Treuhand Group
Stuttgart, Germany
– Expert in financial (IFRS) and sustainability (ESRS and GRI) reporting

– Audit of financial and sustainability reports in accordance with ISAs

– Member of the following AGN bodies:
– EMEA Board of Directors (Chairman)
– EMEA AAEC Accounting, Auditing and Education Committee (Member)