Double Materiality has become a focal point in the realm of corporate sustainability, particularly with the introduction of the EU’s Corporate Sustainability Reporting Directive (CSRD), affecting over 50,000 companies as of this year. Adopted by the European Commission on July 31, 2023, the European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG), serve as the European reporting standards for companies subject to the CSRD. These standards streamline sustainability reporting across the EU, outlining reporting requirements for environmental, social, and governance (ESG) matters.
What is a Double Materiality Assessment, exactly?
The Double Materiality Assessment, (document currently open for public feedback) integral to the ESRS, systematically identifies impacts, risks and opportunities (IROs) across environmental, social and governance (ESG) matters determined to be material. The assessment process determines materiality based on the impact that ESG matters have on the company’s financial performance (financial materiality-«outside-in» perspective), and the societal and environmental impact (impact materiality-«inside-out» perspective), or both. This approach, aligned with the Green Deal, underscores the importance of addressing environmental, social and financial challenges holistically across the entire value chain. By considering both internal and external perspectives, including how corporate strategy, decision making, and activities impact the economy, environment and people, with emphasis on human rights, and how external sustainability matters, affect their financial performance, organizations embracing double materiality drive meaningful change, solid performance and contribute to global well-being.
To perform a thorough double materiality analysis, follow these key steps:
- Stakeholder Identification: Identify relevant stakeholders, including employees, customers, investors, suppliers, and the local community.
- Compile actual/potential, positive/negative material matters: Create a comprehensive list of environmental, social, and governance IROs relevant to all stakeholders across the value chain.
- Assess and prioritize IROs: Assess the materiality of each matter based on its potential impact on the company and relevance to stakeholders, balancing internal concerns and external expectations.
- Impact Materiality pertains to the material information about the undertaking’s impacts on people or environment related to a sustainability matter. For impact materiality consider severity (scale, scope, irreversibility) and likelihood.
- Financial Materiality pertains to the material information about risks and opportunities related to a sustainability matter. For financial materiality assess the materiality of risks and opportunities, using quantitative and/or qualitative thresholds based on financial effects (performance, financial position, cash flows, access to and cost of capital).
- Integrate Double Materiality into the business strategy and reporting. Performing double materiality analysis is an ongoing process, requiring regular review and adjustment and continuous communication to internal and external stakeholders.
Take the QUIZ!
Ready to deepen your understanding? Take our short quiz about double materiality and ESRS to test your knowledge:
Empower your Sustainability Journey with us!
There are many questions regarding the adoption of the ESRS and we at Sustainability Knowledge Group are by your side to assist you further. Our expert consultants provide tailored solutions to help your organization navigate the complexities of sustainability reporting and implement best practices.
___
Sustainability Knowledge Group is a global Sustainability, ESG and CSR advisory firm dedicated in creating value through strategic advisory and training solutions, coaching and meetups. We work with organizations to develop, manage, and measure effective Sustainability strategies and programs, address social and environmental challenges, and bring tangible results, positive impact and create better businesses. If you want to learn more about our services, tools and methodologies, please visit: https://sustainabilityknowledgegroup.com/services/
As a CPD Standards Office and ILM Recognised Provider, Sustainability Knowledge Group offers certified training courses on Sustainability and ESG. To join our trainings and gain the skills and knowledge you need to lead in Sustainability, visit: https://sustainabilityknowledgegroup.com/training