As sustainability reporting enters a new era of regulation, stakeholder scrutiny, and strategic importance, the concept of materiality has become a critical foundation for credible disclosures. Two of the most influential frameworks—GRI (Global Reporting Initiative) and ESRS (European Sustainability Reporting Standards) under the Corporate Sustainability Reporting Directive (CSRD)—take fundamentally different approaches to determining what is “material” in a sustainability context.
In this article, we take a deep dive into how GRI and ESRS define, apply, and operationalize materiality, and what that means for companies navigating voluntary and mandatory sustainability reporting.
1. Why Materiality Matters in Sustainability Reporting
Materiality determines which sustainability topics an organization should report on. It ensures that sustainability reports are relevant, focused, and decision-useful for stakeholders such as investors, employees, regulators, and communities.
A robust materiality assessment helps organizations to:
Prioritize sustainability impacts, risks, and opportunities
Allocate reporting and management resources effectively
Align their sustainability strategy with stakeholder expectations
Comply with evolving regulatory requirements, including the CSRD
As the regulatory and stakeholder landscape becomes more demanding, the materiality assessment is no longer a voluntary “good practice”—it is the foundation of credible and defensible reporting.
1.1 Who Needs to Apply GRI or ESRS?
GRI
The GRI Standards are voluntary and internationally recognized. They are used by:
Companies of all sizes and sectors that want to report on their sustainability impacts
Organizations aiming to demonstrate alignment with global norms (e.g. the UN Global Compact, SDGs, OECD Guidelines)
Entities seeking transparency in stakeholder relationships, public accountability, or ESG benchmarking
Some stock exchanges and national regulators recommend or integrate GRI into their frameworks, but it is not mandatory unless explicitly adopted by regulation. GRI is particularly popular among multinational enterprises, public institutions, and SMEs seeking a lightweight but credible way to start sustainability reporting.
ESRS (CSRD)
The ESRS are legally binding for companies under the Corporate Sustainability Reporting Directive (CSRD), including large EU companies, listed SMEs, and non-EU companies with significant EU business. The CSRD applies in phases from 2025 to 2029, depending on company size, listing status, and geographic scope. The EU-Omnibus initiative is currently planning to adapt the thresholds for companies, which makes the legal situation uncertain. If your company is not subject to CSRD, the GRI Standards remain the leading global framework for voluntary sustainability reporting.
2. Two Distinct Materiality Concepts: Impact vs Double Materiality
GRI: Impact Materiality as the Sole Lens
The Global Reporting Initiative (GRI) is built on the concept of impact materiality, which means identifying and reporting on topics based on how an organization affects the world around it—namely people, the environment, and the economy.
This is sometimes referred to as the “inside-out” perspective: the focus is not on what affects the company, but on what the company affects.
Key aspects of GRI’s materiality concept:
Impacts are central: A topic is material if it reflects the organization’s most significant actual or potential impacts on society, the environment, or human rights.
Stakeholder perspective is required: Input from stakeholders—especially those affected by the company’s activities—is a core component in determining impact significance.
Financial materiality is not considered: A topic can be material under GRI even if it has no financial consequences for the organization.
No predefined topic list: Companies define their own universe of potential material topics, based on context and stakeholder dialogue. Sector Standards may suggest typical topics but are not prescriptive.
Why this matters:
GRI’s approach ensures that sustainability reporting remains accountability-driven. It pushes companies to think beyond compliance or financial relevance and focus on their broader responsibility toward people and the planet.
ESRS: The Principle of Double Materiality
Under the European Sustainability Reporting Standards (ESRS), which are legally required under the CSRD, companies must apply the concept of double materiality. This combines two dimensions:
Impact materiality (like GRI): how the company affects society and the environment
Financial materiality (similar to IFRS/ISSB): how sustainability matters affect the company’s financial position, performance, or future development
This means in practice that a topic is considered material under ESRS if it meets either of these criteria:
It has significant actual or potential impacts (inside-out), or
It represents a significant risk or opportunity to the company’s business (outside-in)
Key implications:
Both perspectives are required: Companies must explicitly evaluate each topic through both lenses and document the results.
Materiality must be defensible: The rationale for including—or excluding—a topic must be transparent, particularly for high-expectation issues like climate change, biodiversity, and human rights.
Financial lens is broader than “investor relevance”: ESRS defines financial materiality in terms of potential effects on revenues, costs, assets, liabilities, or cost of capital, over the short, medium, or long term.
Materiality informs legal compliance: Only topics deemed material through this process will trigger the obligation to apply and disclose detailed ESRS topic standards (with some exceptions for mandatory disclosures).
Why this matters:
The ESRS approach reflects the EU’s goal of integrating sustainability and financial reporting. It aligns closely with the “enterprise value” concept promoted by the ISSB and TCFD, but maintains a strong normative foundation through the continued emphasis on stakeholder and environmental impacts.
3. Materiality Assessment Process: GRI vs ESRS
While both GRI and ESRS require organizations to determine which sustainability topics are material, their methodologies differ in structure, depth, and documentation requirements. GRI provides structured guidance and encourages flexibility; ESRS outlines strict expectations supported by binding disclosure rules.
3.1 GRI Materiality Assessment Process (GRI 3)
In GRI 3: Material Topics (2021), the materiality assessment is laid out as a four-step process. While not legally binding, these steps are well-structured and widely adopted in practice.Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.
Step 1: Understand the Organization’s Context
The organization begins by analyzing its business model, activities, sectors, geographies, and value chain. This includes:
Products and services offered
Markets served
Operational locations
Governance structure and stakeholder environment
Known sustainability risks (e.g. deforestation, labor conditions, emissions)
The company is encouraged to identify relevant stakeholder groups early, such as employees, customers, suppliers, local communities, NGOs, and regulators.
Goal: Build a foundational understanding of where and how sustainability impacts could arise.
Step 2: Identify Actual and Potential Impacts
At this stage, the organization conducts a comprehensive impact identification exercise. Impacts can be:
Actual (already occurring) or potential (could occur)
Negative (harmful to people or the environment) or positive (creating benefits)
Caused, contributed to, or directly linked through business relationships
The scope must cover not only internal operations, but also upstream and downstream value chain activities.
Typical sources include:
Internal assessments (e.g. audits, complaints)
Stakeholder input
GRI Sector Standards
Previous materiality assessments
Civil society reports and news coverage
Goal: Create a longlist of sustainability topics linked to actual/potential impacts.
Step 3: Assess the Significance of Each Impact
Each identified impact is evaluated based on three core criteria (plus a fourth for potential impacts):
Scale – How severe is the impact (e.g. injury, pollution, displacement)?
Scope – How widespread is the impact (e.g. number of people, geographic area)?
Irremediability – Can the impact be reversed or corrected?
Likelihood – (For potential impacts) How probable is the occurrence?
These evaluations are qualitative in nature, though organizations can apply scoring models or heat maps to support consistency.
Stakeholder perspectives must be considered here—both to inform judgments and to validate significance levels.
Goal: Prioritize the topics that reflect the organization’s most significant sustainability impacts.
Step 4: Prioritize and Disclose Material Topics
Finally, the organization compiles a list of material topics—those with the most significant impacts—and discloses:
The methodology used (GRI 3-1)
The final topic list (GRI 3-2)
How each topic is managed (GRI 3-3)
The GRI approach allows flexibility in how results are visualized or structured (e.g. matrix, list, clusters). However, the process must be repeatable and transparent, with clear documentation of assumptions and decisions.
Goal: Provide stakeholders with a clear view of which issues matter most—and how they are managed.
3.2 ESRS Materiality Assessment Process (EFRAG IG 1)
Under the European Sustainability Reporting Standards (ESRS), the materiality assessment is mandatory and must be conducted in line with the principle of double materiality. While the ESRS don’t prescribe an exact procedure, EFRAG’s Implementation Guidance (IG 1) outlines a structured, four-step approach.
Each step must be documented, justifiable, and auditable—not just for internal use, but for external assurance and regulatory review.
Step 1: Understand the Sustainability Context and Stakeholders
Companies begin by mapping their sustainability context, including:
Business model and key activities (products, operations, markets)
Value chain actors (suppliers, distributors, downstream impacts)
Sector-specific risks and expectations
Relevant regulations and societal expectations
Simultaneously, companies conduct a stakeholder analysis, identifying:
Affected and interested stakeholders (employees, communities, NGOs, investors, etc.)
How they will be engaged in the assessment process
The mechanisms used (interviews, surveys, grievance mechanisms, etc.)
Goal: Ensure a comprehensive, evidence-informed foundation for assessing impact and financial relevance.
Step 2: Identify Relevant Sustainability Matters (IROs)
Companies develop a universe of potentially relevant topics, including:
Impacts (how the company affects people and planet)
Risks and opportunities (how sustainability affects the company financially)
This scan must cover all 10 topical ESRS standards, including:
Climate change
Pollution
Water and marine resources
Biodiversity and ecosystems
Resource use and circular economy
Own workforce
Workers in the value chain
Affected communities
Consumers and end-users
Business conduct
External sources (GRI, SASB, TCFD) can support the scan, but companies must ensure that ESRS coverage is complete. A useful starting point is the list of sustainability matters in ESRS 1 Appendix (which enumerates environmental, social, and governance topics to consider) and the IRO Database by CSR Tools.
Goal: Produce a longlist of Impacts, Risks, and Opportunities (IROs) across the ESG spectrum.
Step 3: Assess Materiality in Two Dimensions
Each IRO is tested against two separate criteria:
Impact Materiality
Severity of impact (scale, scope, irremediability)
Likelihood (for potential impacts)
Financial Materiality
Potential effect on:
Revenues, costs
Assets, liabilities
Cost of capital
Considered over short, medium, and long term
Topics are assessed via:
Internal expertise (legal, risk, finance, ESG)
Stakeholder feedback
Scenario analysis or scoring models
Goal: Arrive at a defensible list of material sustainability matters, backed by structured, documented reasoning. In practice, many organizations are using a double materiality assessment software or Excel template to help with the process.
Step 4: Disclose the Process and Outcomes
The final step is to disclose both the material topics identified and the methodology used to assess them, as part of the company’s sustainability statement. Under ESRS, organizations are not only required to report on each material sustainability matter, but also to provide a transparent explanation of how the materiality assessment was carried out and what its outcomes were, as required by:
ESRS 2 IRO-1 → description of the materiality assessment methodology
ESRS 2 IRO-2 → list or table of material topics
SBM-3 → how these topics relate to the company’s business model and strategy
Companies must also:
Justify why any ESRS topic was deemed not material
Report mandatory disclosures even if a topic is not material (e.g. governance, general strategy)
Be ready for external assurance (limited from 2026, reasonable thereafter)
Goal: Publish a transparent, complete, and auditable materiality process—and a CSRD-compliant sustainability report. Leading double materiality assessment tools—such as Materiality Master—support companies by helping them structure and document key elements of this process.
4. The Role of the Materiality Matrix
The materiality matrix is a visualization tool that maps the importance of topics across dimensions. Its role differs across frameworks:
In GRI:
Often used to plot stakeholder importance vs. impact severity
Aids prioritization and engagement dialogue
No longer mandatory, but still a best practice
In ESRS:
Not required, but commonly used to visualize double materiality
X-axis: financial materiality; Y-axis: impact materiality
Topics significant in either axis must be reported
Visual support for audit trail, board-level decisions, and transparency
5. Detailed Comparison Table – GRI vs ESRS Materiality Assessment
This table summarizes the key differences between the GRI and ESRS materiality assessment, not just in concept, but in purpose, scope, application, and documentation. Each row includes a short explanation to clarify how these differences play out in practice.
| Aspect | GRI | ESRS / CSRD |
|---|---|---|
| Materiality concept | GRI uses a single-lens materiality approach, focusing exclusively on the organization’s actual or potential impacts on people, the environment, and the economy. | ESRS requires a double materiality assessment—covering both impact materiality (how the company affects others) and financial materiality (how sustainability affects the company). |
| Legal status | Voluntary framework, unless required by regulators or stakeholders; widely used globally. | Legally binding under the CSRD for all in-scope companies, with assurance obligations. |
| Stakeholder engagement | Explicitly required to inform impact identification and evaluation; stakeholders are central. | Expected as part of due diligence but less prescriptive; based on OECD/UN standards. |
| Assessment scope | Organizations define their own universe of relevant topics, supported by sector standards. | All topical ESRS standards must be screened and either reported on or justified as not material. |
| Assessment process | Four structured steps: context, impact identification, significance assessment, prioritization. | Also four steps, but more formalized and guided by EFRAG’s implementation guidance (IG 1). |
| Disclosure of process | Recommended (GRI 3-1), but flexible in format and level of detail. | Mandatory disclosures under ESRS 2 IRO-1, IRO-2, and SBM-3; must be auditable. |
| Exclusion of topics | Allowed without justification, unless stakeholder expectations or sector guidance suggest otherwise. | All exclusions must be justified, especially for topics like climate or biodiversity. |
| Minimum disclosures | Only material topics are reported; no additional mandatory disclosures. | Some disclosures (e.g. governance, strategy) are required regardless of materiality. |
| Use of matrix | Optional; helpful visual tool but no longer required since GRI 2021 update. | Not required, but widely used to illustrate double materiality; must be supported by evidence. |
| Audit and assurance | Not required; voluntary assurance is possible. | Limited assurance required from 2026, reasonable assurance later; materiality process included. |
| Governance expectations | Management-level responsibility is sufficient; board involvement is optional. | Board-level oversight is expected and must be disclosed as part of governance integration. |
| Reporting orientation | Focuses on public transparency and stakeholder accountability. | Aims to provide decision-useful information for both stakeholders and investors. |
6. Conclusion: Choosing the Right Materiality Framework – or Combining Both
The concept of materiality is undergoing a transformation—from a flexible, stakeholder-driven tool to a regulatory, risk-informed mechanism for corporate accountability and strategic ESG management.
GRI and ESRS represent two different stages in this evolution.
GRI is built around voluntary transparency and stakeholder impact, making it the go-to framework for organizations seeking to report what matters most to society, without being bound to legal compliance.
ESRS, on the other hand, marks the beginning of mandatory sustainability reporting in Europe. It requires organizations to assess materiality through both impact and financial lenses, with auditable documentation, board-level governance, and legal consequences.
Key differences at a glance:
GRI focuses on impact materiality only, while ESRS applies double materiality.
GRI is voluntary, ESRS is legally required under the CSRD.
GRI allows flexibility and interpretation; ESRS requires structure, justification, and disclosure.
GRI reports are for stakeholder accountability; ESRS reports must also serve financial decision-making.
GRI allows lean internal processes; ESRS demands cross-functional collaboration and assurance-readiness.
Materiality has evolved from a reporting formality into a core strategic process. It now serves as a critical lens through which companies assess not only their sustainability impacts, but also their exposure to long-term risks, opportunities, and expectations from society, regulators, and markets.
Whether guided by GRI’s focus on impact and accountability or ESRS’s legally binding integration of financial and sustainability concerns, one thing is clear: Materiality is no longer a checkbox—it is a mirror. And every company must decide what it reflects.
