The double materiality assessment (DMA) is the cornerstone of CSRD compliance — the process that determines which ESRS topical standards apply to a company and what the scope of its disclosures must be. For banks, the DMA is structurally more demanding than for most other sectors because material impacts and risks must be assessed not only across own operations but across the full spectrum of financed activities: corporate lending, project finance, mortgage portfolios, investment banking, and asset management activities.
The Two Dimensions of Double Materiality
Double materiality requires banks to assess sustainability issues from two perspectives simultaneously. Impact materiality asks: does the bank's activity have a significant positive or negative impact on people or the environment? Financial materiality asks: does this sustainability issue create a significant financial risk or opportunity for the bank? For a bank with a large corporate loan book exposed to carbon-intensive industries, climate change is material from both perspectives: the bank contributes to emissions through its lending (impact materiality) and faces stranded asset and transition risk in its portfolio (financial materiality). Both must be disclosed under ESRS E1.
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Assessing Financed Activities: The Distinctive Banking Challenge
Unlike an industrial company, whose material impacts are concentrated in its own operations and supply chain, a bank's most significant impacts occur in the businesses it finances. Assessing the impact materiality of financed activities requires banks to map their loan book and investment portfolio by sector, apply sector-specific impact assessments, and determine which financed sectors generate material adverse impacts across ESRS environmental and social topics. This is an analytically intensive process that requires data from credit systems, portfolio management tools, and sector-level impact research.
Stakeholder Engagement in the Banking DMA
ESRS 1 (General Requirements) specifies that the materiality assessment should involve consultation with affected stakeholders — not just internal business functions and external investors. For banks, relevant stakeholder groups include: community organisations in areas where the bank finances development projects, NGOs working on issues connected to the bank's financed sectors (environmental groups, human rights organisations), trade unions representing the bank's employees, and consumer advocacy organisations representing retail customers. A bank that conducts its DMA entirely through desk research and internal workshops without any external stakeholder engagement will struggle to defend the process under assurance review.
The DMA Process: Step by Step
- Map the bank's activities and business relationships — own operations, corporate lending, retail lending, investment banking, asset management
- Identify the full universe of ESG topics across all ESRS topical standards
- Assess impact materiality for each topic across all activity types, using internal data, sector research, and stakeholder input
- Assess financial materiality for each topic using financial risk data, scenario analysis, and external benchmarks
- Determine materiality thresholds — which topics are material and therefore require full ESRS disclosure
- Document the process, assumptions, and stakeholder engagement for assurance purposes
- Review annually — materiality is not static; significant portfolio changes or regulatory developments can shift the assessment
Common Mistakes in Banking DMA
- Limiting the assessment to own operations and ignoring financed activities — the most common and consequential error
- Using a generic materiality matrix without sector-specific calibration for banking activities
- Failing to conduct meaningful external stakeholder consultation
- Setting materiality thresholds too high, resulting in a near-empty ESRS disclosure that will not survive assurance review
- Treating the DMA as a one-time exercise rather than an annual process
