ESRS DMA: Aligning Your Nature Risk Assessment with the CSRD
Updated July 2026
Key Insights
To comply with the Corporate Sustainability Reporting Directive (CSRD), in-scope firms should conduct a location-based assessment of direct operations and supplier sites if they have the potential to impact nature through pollution, using/altering land or water ecosystems, extracting water or other resources, or contributing to the spread of invasive species.
Location-based assessments are also required if nature dependencies could create material financial losses to the business, to identify areas of nature risk.
While the European Sustainability Reporting Standards (ESRS) describe that companies are not required to spend “undue cost or effort” on these assessments, it conversely does require that the assessments be done as soon as the information or tools become reasonably available.
An activity that seems immaterial in one location might be highly material in another due to the local nature context. Materiality determination for environmental topics cannot be generic – it must reflect geographic context.
The ESRS recommend using the TNFD LEAP approach since it is the most comprehensive and straightforward way to meet the ESRS requirements.
Final Draft of the ESRS
The final draft of the ESRS was adopted by the European Commission in July 2026, and will enter into force in Q4 of 2026. While this draft did not substantially change from the previous November 2025 version, it is a long and sometimes confusing set of requirements. Here we updated our insight from December 2025 to clarify some of the language that pertains to the Double Materiality Assessment (DMA) and Environmental Topical Standards.
Overall, the Standards describe that companies must disclose anything that could “reasonably be expected to influence” decisions that users make based on sustainability statements. This refers to information pertinent to users of financial reports – investors, lenders – but also other stakeholders, since double materiality includes impact materiality. The level and granularity of assessment is left up to companies, depending on data availability, affordability, and accessibility.
“Undue cost or effort”
One main reason for revising the ESRS was to relieve the burden on companies. The July 2026 draft has kept the reduction of required data points - reduced by 61% from versions prior to November 2025. ESRS language describes that companies “shall use all reasonable and supportable information” that is available without spending “undue cost or effort.” Alternately, the ESRS also clarifies that if and when information and tools become available that materiality disclosures must be made.
Flexibility
The July 2026 draft maintains flexibility for companies in how they conduct assessments, particularly around conducting the DMA. While flexibility can be helpful, it can also create uncertainty and risk. Here we clarify how to conduct a compliant DMA.
What is Double Materiality?
A double materiality assessment (DMA) remains a core requirement of the ESRS. In a DMA, companies evaluate sustainability topics from two perspectives:
Impact Materiality: How the company’s activities impact the environment and society
Financial Materiality: How environmental and social issues affect the company's financial performance
Companies now have flexibility in how they conduct their DMA. Either a top-down or bottom-up approach can be used as long as material impacts, risks, and opportunities (IROs) are appropriately identified and disclosed. The critical principle here is that the chosen method for assessing materiality leads to a “faithful representation” of these material IROs.
Companies need to report information about a given topic from an impact perspective if that topic relates to the company’s “material actual or potential, positive or negative impacts on people or the environment over the short, medium or long term.” From the ESRS perspective, impacts can be material exclusively from an impact perspective, irrespective of whether they are financially material.
Most importantly: the assessment approach, including level of aggregation, cannot “obscure material information." So in practice, a top-down or aggregation method needs to hold up on its own terms. Consider:
Are you located in geographies important for biodiversity or experiencing nature loss?
Is your sector type known to be high impact?
Does your value chain include raw material extraction?
If one of these categories could plausibly change the materiality outcome, a purely qualitative top-down analysis won't be compliant, and an assessment will be needed at a more granular level for that topic. Another way of thinking about this is to ask the question: “would a closer look change the answer?”
While requiring a site-level, bottom-up assessment of all business locations sounds daunting, with tools like Dunya Analytics’ nature risk assessment platform, this would not represent undue cost or effort. Our platform can conduct this assessment within seconds, even for hundreds or thousands of sites.
The details of DMA: assessing impact and dependency materiality
Materiality is defined by the Taskforce on Nature-Related Financial Disclosures (TNFD) as a moderate, high, or very high level of impact or dependency. Both impacts and dependencies are linked to business risk: material impacts can lead to nature-related transition risks, while material dependencies can lead to physical risks.
This means that you need to consider:
Impacts: Do your business activities have the potential to impact nature through any of these drivers of nature change?
Use of change of land or water
Pollution to air, water, or soil
Extraction of water or other resources (such as fishing or mineral extraction)
Introducing or increasing the spread of invasive species
Dependencies: Do your business activities depend on nature in any of these ways?
As a service provider: to purify water, filter air, naturally control pests, naturally pollinate crops, or provide an environment to conduct research for products
As a supplier of products such as a reliable water supply, healthy soil, or genetic material for products
As infrastructure for flood or storm mitigation, soil stability, or regulating the local climate conditions
For remediation of air, water, soil, noise, or light pollution
Supporting asset value, such as to mediate noise or provide visual aesthetics that enhance property value
If the answer is yes for direct operations or value chain, then a location-based assessment needs to be completed as part of your DMA. If you don’t have the locations of your suppliers, you can still get started – see the section below on Assessing Nature Risk in the Supply Chain with the Data You Already Have.
Both impacts and dependencies are industry- and activity-specific, so different business activities occurring across sites will have different risks associated with impacts and dependencies.
Environmental Topics (E1-E5)
For environmental topics, a materiality determination must account for geographic context – the actual places where a company operates or has impacts. This includes factors like:
Local air, water, and soil quality conditions
Water availability in water-stressed regions
The presence of threatened species and sensitive ecosystems in biodiversity-rich areas
Note that for social topics, the ESRS require a DMA to also consider local factors that could create or add to negative social impacts. This includes understanding the presence of human communities, particularly vulnerable populations such as Indigenous Peoples.
An activity that seems immaterial in one location might be highly material in another due to the local nature context. A materiality determination for environmental topics cannot be generic – it must reflect geographic context.
Assessing Risk in Your Value Chain
Companies must report material information regarding their value chain. However, ESRS requirements acknowledge the difficulty of collecting site-specific data across the entire value chain and allow flexibility in the following ways:
Data Collection: Companies can use direct counterparty data or estimates based on practicability and reliability.
Estimates and Proxies: Acceptable sources include sector averages, sample analyses, peer data, spend-based data, and other proxies from internal or external sources.
Focused Scope: Companies need only assess areas where material impacts, risks, or opportunities are likely, not every possible value chain element.
Top-Down Approach: Value chain materiality assessments can use regional averages, sector data, or public information without direct input from value chain actors.
If you don’t have location data for your suppliers, check out our insight on Assessing Nature Risk in the Supply Chain with the Data You Already Have. The Standards recognize that data availability will improve over time, and subsequently set the expectation that value chain assessments should also improve over time.
Being Audit Ready: 3 Key Principles for Environmental Topics
An audit will examine whether your DMA meets three key principles:
Fair Presentation: Your sustainability statement must fairly present all material impacts, risks, and opportunities. If you have physical sites in contexts where biodiversity impact is plausible, and you didn't check that context before concluding non-materiality, your representation risks being incomplete.
Reasonable and Supportable information: You must base conclusions on your available information (without undue cost or effort). For biodiversity, if you have not completed any geographic assessment of biodiversity, your non-materiality claim lacks the necessary information required by the Standards.
Disclosure of Methodology: You are required to disclose your DMA process, including methodologies, inputs, assumptions, and how you considered heightened risks in specific geographies. If your methodology dismisses biodiversity without addressing whether geography could change the outcome, auditors may find that reasoning incomplete for this specific topic.
LEAP and ESRS E4: Biodiversity and Ecosystems Compliance
The ESRS reference the first three steps of the TNFD LEAP approach as useful guidance, though it is not a mandatory framework. However, the core function of LEAP – locating where you operate, evaluating the biodiversity context, and assessing your impacts,dependencies, and risks based on specific geography – is essential for credibly determining whether biodiversity is material to your business. We therefore recommend using the LEAP approach because it is the most comprehensive and straightforward way to meet the ESRS requirements. It provides a clear, structured approach that directly addresses location-based analysis that can answer questions about geographical context.
See our detailed insight Navigating the ESRS E4 Disclosure Requirements to learn more about biodiversity disclosure requirements.
Timeline for CSRD reporting
The draft ESRS are expected to be finalized and become legally binding in Q4 of 2026. These would apply for reporting on the 2027 financial year (with reports published in 2028), though companies may adopt them any time.
Why Start Now
Due to the complexity of nature topics, it typically takes companies three years to reach a level of confidence where they are ready to report on material nature topics. A basic assessment in the first year helps build fluency in nature risk and identify areas of measurement focus. A full TNFD assessment in the second year uncovers the comprehensive risk picture, enabling the first deployments of nature insights across the business. Expansion of the assessment to the supply chain and the development of nature targets and action plans happens in the third year, with companies positioned to publish regulatory-compliant nature risk disclosures.
Streamlining Your ESRS E4 Compliance with Dunya Analytics
Understanding the requirements is one thing, but efficiently meeting them is another. At Dunya Analytics, our platform is built to ease double materiality and location-based assessment challenges – both for your direct operations and supply chain.
The ESRS references the first three steps of the LEAP process, which our platform automates for you:
Locate interfaces with nature
Evaluate the related impacts and dependencies on nature
Assess your associated risks or opportunities
Our platform handles the technical complexity of data collection and geospatial analysis, so you can focus on the strategic work of embedding the results in your business and developing appropriate responses.
Whether you are just beginning your CSRD compliance journey or refining your existing approach, we can help you meet the geographic context requirements with confidence.
Ready to get started? Contact us to learn more about how Dunya Analytics can support your ESRS E4 compliance or schedule a demo to see our platform in action.
Additional Resources
You can find the full draft ESRS on EFRAG’s website.
Check out the ESRS Knowledge hub, a central digital platform that acts as a single entry point to all ESRS and related resources.
Detailed guidance on the TNFD LEAP approach can be found on the TNFD website.
