Double materiality is a hot topic in today's corporate sustainability world – and for good reason. Conducting a Double Materiality Assessment is the first step towards complying with the EU’s new Corporate Sustainability Reporting Directive (CSRD), which will impact over 50,000 companies starting this year! 

With such a big change on the horizon, and penalties looming for non-compliance, now’s the perfect time to understand the ins and outs of a Double Materiality Assessment and how it applies to your business. 

This article unpacks all the basics, plus, we’ve also included a free, in-depth guide to kickstart your preparations (before it’s too late).

Why Double Materiality Assessment is a must for companies

Carrying out a Double Materiality Assessment is a mandatory step for all companies affected by the EU’s CSRD. 

It helps your business to pinpoint which sustainability topics listed in the European Sustainability Reporting Standards (ESRS) are material to your business. It ensures sustainability reports focus on topics that are truly relevant, instead of topics that may align with a company's preferences or perceived importance.

Zooming out, the Double Materiality Assessment plays a critical role within the EU’s Green Deal, an initiative set to transform Europe into the first climate-neutral continent by 2050. 

With the European Commission recommending a 90% cut in net greenhouse gas emissions by 2040 compared to 1990 levels, the Double Materiality Assessment becomes a tool for aligning corporate practices with the EU’s bold climate ambitions. It motivates companies to ramp up their decarbonization efforts and paves the way for a more sustainable future.

What is a Double Materiality Assessment, exactly?

Not every topic under the ESRS needs to be included in your annual sustainability report – only those deemed “material” to your business. 

A Double Materiality Assessment is a tool for figuring out which sustainability topics must be included in reports. Topics can be material based on how they affect your business's financial performance (financial materiality), how they impact society and the environment (impact materiality), or both.

By evaluating your business from these dual lenses you can focus your efforts on areas that matter most, helping you to comply with the CSRD while also making a positive contribution to the planet.

While this article covers the essential elements of Double Materiality Assessments, it's just a starting point.

For a deeper look into the intricacies including actionable steps to ensure your company not only complies but excels under the CSRD, make sure to download our free guide now.

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Key elements of the Double Materiality Assessment for CSRD

There are multiple elements to consider when carrying out your Double Materiality Assessment:

Frequency of assessment

Your company's material topics should be reviewed on an annual basis unless there haven’t been any material changes internally or externally.

Impact materiality

Impact materiality, often referred to as the inside-out perspective, looks at how your company's actions influence the environment and society. It involves identifying both the actual and potential positive and negative impacts. 

Calculating thresholds - impact materiality

When assessing impact materiality, it’s important to consider characteristics such as scale, scope, irremediability, and likelihood. An evaluation scale of 1 to 5 is typically used for each dimension, from negligible to significant, as well as for the likelihood of these impacts occurring from highly unlikely to highly likely.

You should use quantitative data whenever possible. When quantitative data is not readily available, qualitative insights from stakeholder interviews and research become invaluable. It's also important to document the rationale behind your chosen thresholds clearly to streamline the auditing process. 

Financial materiality

Financial materiality, also known as the outside-in perspective, refers to how external environmental and social issues affect your company's financial health. Assessing financial materiality involves analyzing the impacts, risks, and opportunities (IROs) that arise from the ESRS topical standards. 

Calculating thresholds - financial materiality

IROs should be evaluated based on their potential magnitude and likelihood of occurrence in the short (<1 year), medium (1-5 years), and long-term (>5 years). It’s good practice to use a Likert scale from 1-5, with magnitude being measured on an insignificant-significant scale, and likelihood being measured on a very low-very high scale.

Stakeholder engagement

Engaging stakeholders is key in the Double Materiality Assessment to ensure you’re considering a wide range of sustainability perspectives. This involves gathering insights from your employees, investors, regulators, and community representatives through surveys and focus groups on the materiality of the 10 ESRS topics. 

Getting this input early on can help you focus on the issues that matter most to people and enrich the relevance and credibility of your reports.

Media/literature analysis

Conducting a media analysis is a vital element of the Double Materiality Assessment. This step ensures you’re well-informed about the context of sustainability matters that could impact your reporting and strategic decisions.

It typically involves reviewing media reports, scientific articles, industry benchmarks, and other publications relevant to sustainability matters. 

The integration of ESRS on double materiality

On December 22, 2023, the European Union made a big step forward in sustainability reporting by publishing the first set of the ESRS in the Official Journal of the EU.

Under the umbrella of the CSRD, the ESRS aim to standardize sustainability reporting across the EU, offering a concrete framework for the CSRD's reporting requirements.

The Double Materiality Assessment is essential to the ESRS, providing a structured way to identify which sustainability topics highlighted in the ESRS are material to a business. 

This important step helps companies comply with both the ESRS and CSRD and focus and report on sustainability topics that are most relevant to their operations and stakeholders.

How to document and report upon assessment findings? 

Documentation and reporting are critical components of the double materiality assessment process. Clear, comprehensive documentation ensures that the rationale behind materiality decisions is transparent and defensible. 

When it comes to reporting, the CSRD and ESRS provide guidelines on how to present your findings, ensuring that stakeholders can easily understand and assess your sustainability performance.

Get started with your Double Materiality Assessment with this full guide

While performing a Double Materiality Assessment may seem daunting, it's a crucial step toward aligning your business with today's sustainability expectations and complying with requirements like the CSRD. 

Unsure where to begin? To help you navigate this process, we've created an in-depth guide that covers everything from the basics of double materiality to the specifics of how to document and report on your findings.

So, whether you're just starting on your sustainability journey or looking to enhance your existing practices, download our full guide now and take the first step towards a more sustainable future for your business.