To contribute to sustainable development, companies must understand and manage their positive and negative impacts, ensuring transparency, objectivity, and reliability in their management and responsibility.
The concept of 'double materiality' within the ESG reporting reflects the idea that companies possess the capacity to influence the environment and society while also being affected to the effects of environmental and social concerns themselves.
Sustainability Reporting and Double Materiality
What is double materiality?
In a nutshell, double materiality is defined to scope ambitions and legal boundaries, and to showcase the impact of the organization on the environment (non-financial disclosure) and the impact of the environment on the organization (financial). The purpose of this is for a company to report to investors, lenders or insurers is of course only part of the picture when it comes to creating mechanisms to enable responsible corporate conduct towards the environment and society.
Companies are required to map their value chains in their business - which means giving ESG initiatives a legal basis. For double materiality assessment under the CSRD, the first step is often extending a company business model illustration into an overview of the business model and value chain. It’s recommended to illustrate these on a slide to reflect relevant elements.
Source: New Guidelines on Reporting Climate-Related Information, European Commission(See note 4)
Implementing Double Materiality in Business Operations
Stakeholder engagement as the number one priority
Classic materiality assessments often resembled a competition for having surveyed most stakeholders from employees, and customers to boards and investors. Double materiality however focuses more on involving stakeholders. Emphasis should be placed on selecting the right stakeholders who are the most representative of the most affected groups. Engaging with most important stakeholders adds more value to the assessment than the sheer quality of consulted stakeholders.
Creating workshops as a starting point
But where do you start? An efficient way to kick-start the assessment is “mapping workshops” with a broad group of internal stakeholders who represent different business units, interact with different types of stakeholders, and jointly account for the core of the company’s knowledge on ESG topics.
Identify the sustainability issues
Identify the sustainability issues: Identify the social, environmental, and economic issues that are most significant to your business (operations and value chain) and its stakeholders. This will involve gathering input from stakeholders and analyzing data to determine the issues that have the greatest impact on your business and society.
Assess the financial impact
Assess the financial impact of each sustainability issue on the company's financial performance including risks and opportunities. This will involve quantifying the costs and benefits of managing each issue, as well as estimating the potential financial risks associated with each issue.
Assess the non-financial impact
Assess the non-financial impact of each sustainability issue on the environment and society, including both positive and negative impacts. This will involve evaluating the company's impact on issues such as greenhouse gas emissions, water use, and human rights.
Evaluate the significance
Evaluate the significance of each sustainability issue based on its financial and non-financial impact. This will involve prioritizing the issues that are most material to the company's business and stakeholders. Quantify the financial, environmental, and social impacts of the identified sustainability issues.
Develop action plans
Develop action plans to address the most material sustainability issues identified in the assessment. Use the results of the assessment to prioritize actions that will mitigate the negative impacts and capitalize on the opportunities identified. These action plans should include specific targets, timelines, and responsibilities for implementation.
Monitor & report
Monitor progress on the implementation of the action plans and report on the company's sustainability performance to stakeholders. This will involve ongoing monitoring and reporting to ensure that the company is making progress towards its sustainability goals and commitments. Communicate the results of the double materiality assessment to stakeholders transparently through sustainability reporting and disclosure processes, verified by an accredited 3rd party.
Strategic implications of early compliance:
For every sustainability issue identified as material, the CSRD requires companies to disclose exactly what measures they’re putting in place to manage their societal and environmental impacts. This means that companies have to disclose the metrics and targets and also policies and action plans they will execute to achieve such goals.
To help you find focus we suggest you ask yourself the following questions:
- What do you want to achieve?
- How do you plan to get there?
Additionally, CSRD requires companies to disclose how they account for sustainability matters. CSRD also puts forward the focus on third-party verification.
How can your employees support your climate law compliances?
By actively engaging in these actions, employees can help their organizations not only meet early climate law compliance requirements but also promote a culture of sustainability that benefits the environment and the company's long-term success.
Your employees can help in a variety of ways, for example by staying informed about climate policies, attending training on climate compliance, supporting waste reductions, getting involved in sustainability teams, using eco-friendly commuting options, and much more!