Double Materiality Assessment for SMEs: Simplified Guide

Introduction

Double materiality is one of the most important — and misunderstood — requirements of the Corporate Sustainability Reporting Directive (CSRD). For large companies, it’s a complex analytical process; for small and growing businesses (SMEs), it can be simplified while still meeting expectations from clients, banks, and investors.

This guide explains what double materiality means in practice, how small and growing businesses (SMEs) can approach it proportionately, and how the Voluntary Sustainability Reporting Standard for SMEs (VSME) helps structure it efficiently. The goal is to make this process achievable, transparent, and useful for your business rather than an administrative burden.

What Double Materiality Means

Under the CSRD (Directive 2022/2464/EU), companies must assess sustainability information from two perspectives:

1. Impact materiality – how your business affects people and the environment (positive or negative).
2. Financial materiality – how sustainability issues affect your company’s financial performance, risks, or opportunities.

Together, these two lenses ensure that sustainability reporting captures both your company’s footprint and your exposure. This concept replaces the old idea of “non-financial reporting” with a broader, integrated view of value creation and risk management.

For SMEs, the European Financial Reporting Advisory Group (EFRAG) has translated this concept into practical, scalable steps through the VSME Standard, which encourages focusing on what’s truly relevant for your size, sector, and stakeholders.

Step-by-Step: Simplified Double Materiality for SMEs

Step 1: Identify Your Stakeholders

List who is affected by your business or who depends on it: employees, customers, suppliers, banks, investors, and local communities. Small and growing businesses (SMEs) can keep this light — an internal team workshop or quick stakeholder mapping exercise is sufficient.

Step 2: List Possible Sustainability Topics

Use the list in Appendix B of the VSME Standard as a reference. It includes environmental topics (energy, emissions, water, waste, biodiversity) and social ones (workforce, community, human rights). From this, select 10–15 topics that seem relevant to your operations.

Step 3: Assess Impact and Financial Relevance

For each topic, consider:

• Does our business significantly affect people or the environment?
• Could this issue significantly impact our financial performance or reputation?

You can rate each topic as high, medium, or low for each perspective. A topic rated “high” in either dimension is material and should be reported.

Step 4: Document the Results

Keep a simple table or matrix showing:

Include a short narrative explaining your reasoning — who was involved, when it was done, and how you’ll review it annually. This transparency is key for credibility and aligns with the Basic Module disclosures (B1 and B2) of the VSME Standard.

Step 5: Update Annually

Even small and growing businesses evolve. Review your materiality matrix each year or when significant changes occur (e.g. new product lines, sites, or customers with CSRD reporting needs).

Practical Tips for SMEs

• Start simple. Use qualitative judgments first; you can refine with data over time.
• Use existing documents. Risk registers, health and safety reports, and customer audits often contain useful inputs.
• Engage your team. People on the ground often know where the real sustainability impacts lie.
• Keep records. Your documentation doesn’t need to be published but will show due diligence if requested by clients or banks.

For guidance on structuring sustainability topics and metrics, see our overview of the VSME Standard.

Frequently Asked Questions

How detailed does my double materiality assessment need to be?

For small and growing businesses, proportionality applies. You are not expected to conduct deep quantitative analyses. A clear qualitative explanation of how you identified and prioritised topics is sufficient under the VSME approach.

Learn more about proportional CSRD reporting for SMEs →

Who should be involved in the assessment?

Ideally, a small cross-functional team — finance, HR, operations, and management. External consultants are optional; what matters is that decisions are informed and documented. Many small and growing businesses combine this with their annual strategy or risk review.

How often should I update the assessment?

At least once a year or whenever there are significant business changes. Regular review ensures continued alignment with stakeholder expectations and evolving environmental or social risks.

See how to integrate CSRD into annual planning →

What if my clients ask for more detailed data?

You can use the Comprehensive Module of the VSME Standard to expand your disclosures — for example, adding quantitative indicators on emissions or workforce. Start with the Basic Module and scale up as needed.

Explore data collection methods for SMEs →

Key Terms

• CSRD: Corporate Sustainability Reporting Directive (EU 2022/2464)
• Double Materiality: Concept combining impact and financial perspectives
• VSME: Voluntary Sustainability Reporting Standard for non-listed SMEs
• ESRS: European Sustainability Reporting Standards
• Materiality Matrix: Table showing priority sustainability topics
• Proportionality: Principle allowing SMEs to tailor effort to their size and impact

Conclusion

Double materiality doesn’t have to be daunting. For SMEs, it’s about understanding which sustainability issues truly matter — to your stakeholders and your financial health — and documenting that reasoning clearly. Starting small and building consistency year by year will ensure you stay aligned with both CSRD expectations and market demands.

By following the VSME Standard’s simple framework, small and growing businesses can demonstrate responsibility, improve decision-making, and strengthen relationships with larger clients who depend on reliable sustainability data.

To help you identify which sustainability topics are most relevant to your business, use our industry topic selector:

This tool will help you determine which topics are most material to your business operations and stakeholders.