Double Materiality Assessment
Double Materiality Assessment
Now that the Corporate Sustainability Reporting Directive (CSRD) has come into force, the environmental, social and governance information that companies have to report on is getting significantly more extensive. In order to decide which sustainability matters are material to report on, a double materiality assessment is mandatory. But a double materiality assessment is more than a compulsory step in sustainability reporting; it offers valuable input for any company's strategy.
What is Double Materiality?
The term ‘materiality’ originates from financial accounting. In accounting, materiality refers to the principle that all transactions or business decisions that are likely to impact investors’ decision-making must be reported on in a business’s financial statements. In sustainability reporting materiality is broader. Materiality determines which sustainability topics are most important to a company. Double materiality takes materiality a step further. What is material, is based on two perspectives: the impact perspective and the financial perspective, hence the word double materiality.
Impact materiality: Impact materiality considers how a company's activities, products, and services affect the environment, people, and the economy. It is also referred to as the inside-out perspective. It focuses on the impact of the company on society and the planet and the impact can be positive or negative and actual or potential.
Examples of impact materiality are reducing inequality and promoting inclusion, but also damage to nature and violations of human rights.
Financial materiality: Financial materiality emphasizes the impact of sustainability topics on the company. This is the outside-in perspective. A sustainability matter is material from a financial perspective if it triggers or could reasonably be expected to trigger material financial effects on the organization. This is the case when a sustainability matter generates risks or opportunities for the organization and/or when the organization has a dependency on natural/social resources.
Examples of financial materiality are additional costs due to emissions taxes, fines for non-compliance with regulations and financial opportunities from circular business models.
Sustainability topics can be material from both the impact and the financial perspective. The impacts of a company on people and the environment, and the changes a company makes to address such impacts, often give rise to risks and opportunities resulting in financial materiality.
Double Materiality and CSRD
Double materiality is a key principle in the CSRD. This European legislation came into effect on the 5th of January 2023, and it requires companies to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment.
The aim is to provide investors and stakeholders with the necessary information for assessing companies' impact on people and the environment, as well as evaluating financial risks and opportunities related to sustainability.
Benefits of a double materiality approach
Approaching a double materiality assessment as a compulsory step in your reporting process would be a waste. A double materiality assessment offers great insights and has practical applications in strategic decision-making.
- Input for strategy: Looking at materiality from both perspectives enables companies to identify their most essential topics for the short, medium and long term. Knowing your sustainability impacts, risks and opportunities and embedding them in your decision-making processes helps you to get ahead of the game.
- Input for risk management: Like for strategy, embedding sustainability risks and opportunities in your risk management helps you to be on top of them.
- Strengthening stakeholder relationships and engagement: Double materiality assessments require stakeholder input. Organizations can leverage this to strengthen their engagement with stakeholders.
Our four-step double materiality assessment
The initial step towards compliance with the CSRD is identifying the topics that are most material to an organization. That's where a double materiality assessment comes into play. At 2impact we use the following 4 step process to assess materiality.
Our double materiality assessment services
Setting up a double materiality assessment for the first time can be a real challenge. Wouldn’t it be great if you had some help from a company that has done it many times before and knows all the ins-and-outs? We can help you with:
- the methodology for a materiality assessment
- guidance on your materiality analysis
- complete execution of the materiality analysis
- setting up stakeholder dialogue
- support in your CSRD journey, from double materiality assessment, through gap-analysis and final reporting
Our services are tailor-made depending on your maturity and the complexity of your organization. Contact us for more information on firstname.lastname@example.org.