How organizations can align sustainability with strategy under the evolving European Sustainability Reporting Standards (ESRS).
When Europe’s new sustainability standards came into effect, one phrase began echoing across boardrooms: double materiality.
For many, it sounded like another layer of ESG complexity. But for the companies that have already begun navigating the European Sustainability Reporting Standards (ESRS), it’s proving to be something else entirely: a chance to rethink how business, risk, and impact truly connect.
That theme took center stage in a recent webinar hosted by IRIS CARBON® and D.A. Carlin & Company, where David Carlin, one of the world’s leading sustainability strategists, joined Farzad Wadia, Head of ESG Solutions at IRIS CARBON®, to unpack what double materiality really means and how companies can use it to their advantage.
A Shift in How Companies See Themselves
“Double materiality is about realizing that we can’t just look at one side of the coin. Your company’s actions have impacts on the world and those impacts, in turn, create financial effects for your business.”
-David Carlin
Founder,D.A. Carlin and Company
In a single sentence, he captured the logic behind the EU’s new sustainability directive. The Corporate Sustainability Reporting Directive (CSRD) now expects organizations to view performance through two lenses:
- The outside-in view: How environmental and social changes affect the company’s financials.
- The inside-out view: How the company’s activities affect people, the planet, and society.
The combination of these two perspectives is what’s known as double materiality. It’s a shift that moves sustainability from compliance to strategy.
“Climate is material for virtually every firm,” Carlin noted. “But investors today want more than a narrative — they want to see how those impacts translate into financial outcomes.”
That’s where the ESRS becomes both a challenge and an opportunity.
What emerged was a clear five-step process that is practical, data-driven, and built on experience.
Step 1: Bring in Business Context
Every DMA begins with one essential question: What is your business trying to achieve, and where do your impacts start and end?
“You need that inside-out and outside-in perspective, understanding the value chain and engaging the right stakeholders early makes all the difference.”
Farzad Wadia
Head of ESG Solutions, IRIS CARBON®
A successful Double Materiality Assessment (DMA) starts with context. Companies need to define the boundaries of their operations, map their value chains, and identify the stakeholders whose perspectives matter most.
Using frameworks such as ESRS and GRI, teams can structure this process through stakeholder mapping and thematic evaluation. The goal is to translate diverse perspectives from employees, suppliers, investors, and regulators into a clear understanding of the company’s footprint.
At this stage, context is everything. It sets the direction for what will truly be considered material in the next steps.
Step 2: Define IROs (Impacts, Risks, and Opportunities)
Once the context is clear, the next step is defining your IROs that’s the heart of the assessment.
This involves identifying how the company’s activities create impacts, both positive and negative, and how those link to risks and opportunities.
The challenge isn’t identifying data; it’s knowing what to focus on, that’s where structured frameworks like ESRS and GRI make a difference. They give you a starting point.
Farzad Wadia
Head of ESG Solutions, IRIS CARBON®
Organizations often use cause-and-effect analysis or stakeholder workshops to connect sustainability topics to business drivers. The ESRS and GRI topic lists, which together cover more than 90 environmental, social, and governance themes, provide a useful reference for scanning topics.
The outcome of this stage should be a concise list of IROs that reflect both the company’s business model and its stakeholder priorities.
Step 3: Assess Impacts
This is where the analytical work begins. Here, companies evaluate each identified impact for its scale, scope, and likelihood, determining which issues have the most significant positive or negative effects.
“Impact assessment is where most companies underestimate the effort, you need a framework that blends qualitative and quantitative analysis.”
Farzad Wadia
Head of ESG Solutions, IRIS CARBON®
He emphasized the value of using metadata and benchmarks from the first wave of CSRD-compliant reports. These resources can help organizations develop consistent scoring frameworks and reduce subjectivity.
At this stage, many companies begin developing Key Performance Indicators (KPIs) to measure and monitor their most significant impacts. This transforms sustainability from a broad concept into something measurable, comparable, and actionable.
Step 4: Assess Opportunities and Risks (Financial Materiality)
This is where the two perspectives of double materiality come together: how sustainability impacts the company and how the company impacts sustainability.
David Carlin described this step as a translation exercise that connects sustainability realities to financial outcomes. For example, a water scarcity issue might increase operational costs, a labor rights issue could create legal exposure, or a shift toward green regulation might open new market opportunities.
To do this effectively, companies integrate ESG insights with financial planning and scenario analysis. Carlin called this approach “the future of enterprise risk management.”
“When you start linking ESG data to cost, revenue, and capital allocation, you stop treating sustainability as a side report it becomes part of how you run the business.”
Farzad Wadia
Head of ESG Solutions, IRIS CARBON®
This step transforms ESG from a compliance activity into a tool for financial foresight and strategic advantage.
Step 5: Visualization and Reporting
The final step in the DMA process is clear and transparent disclosure.
Stakeholders should be able to see not only what is material but also why.
“A materiality matrix is not just a chart; it is a visualization of how your organization thinks about the world and how the world affects your organization.”
Farzad Wadia
Head of ESG Solutions, IRIS CARBON®
Modern ESG tools such as IRIS CARBON®’s ESG reporting software automate parts of this process. They score material topics, enable collaboration with stakeholders, and produce audit-ready reports that align with ESRS and GRI requirements.
Visualization is where complex analysis turns into accessible insight, helping companies communicate their ESG priorities clearly to regulators, investors, and employees alike.
From Compliance to Competitive Advantage
Both David Carlin and Farzad Wadia agreed that double materiality is not a passing phase. It is the direction in which ESG reporting is heading.
“Materiality isn’t a one-time exercise. It should evolve with your business and reflect new data, new risks, and new opportunities.”
Farzad Wadia
Head of ESG Solutions, IRIS CARBON®
For companies navigating Europe’s evolving ESG landscape, a well-executed Double Materiality Assessment is more than a compliance exercise. It is a strategic process that connects sustainability and finance, helping organizations turn ESG data into smarter decisions and long-term value.
To move from a manual, complex DMA to a centralized, audit-ready process, explore the tools and expertise discussed in this webinar.
