Mastering CSRD challenges: The double materiality analysis in seven steps

In 7 steps through the double materiality analysis

1. create an understanding of dual materiality

The dual materiality analysis is carried out slightly differently in every company.
Depending on the company’s technical expertise, external sustainability and ESG consultants should be consulted.
A high-quality analysis is important because it forms the basis for the sustainability reports of the coming years.
Process support from ESG experts is also helpful because auditors will review the double materiality analysis process in the future.
First, however, it is important for you and your sustainability team to take a closer look at the concept of dual materiality.
Here are some questions that are helpful in this first phase:

• Are we familiar with the concept of dual materiality?
  Does everyone in the team understand which aspects (financial and impact materiality; impacts, risks and opportunities) need to be considered?
• What are the general conditions of our company, which topics are relevant from the outset due to the environment, industry and products?
• Which upstream and downstream economic activities, from raw material extraction to consumption and disposal, are part of the value chain?
• Do we all understand what the dual materiality analysis process should look like, what our goal is, how we will proceed?
• What are important stakeholder groups (e.g. those affected by impacts; groups with an interest in information) with whom we work and to whom we address?
• Have we brought the management team on board and kept them sufficiently informed?
  Can we count on their commitment?

2. create a roadmap for the dual materiality analysis

Once everyone is familiar with the topic and has gained an overview, the next step is to plan the project.
Fundamental decisions should be made in three areas: Responsibilities: Clarify who in your team is responsible for what.
Also consider for which tasks external ESG consultants should be brought in. Time and resource plan: The dual materiality analysis takes time.
Create a schedule and think carefully about the human and financial resources you need.
Plan in such a way that you can talk to all important stakeholders, involve management in the process and also coordinate the results well at the end.
Think about all of this in the context of the sustainability report: have you already considered the double materiality analysis when preparing the report or do you still need to adjust the project plan? Sources and contact persons: Think about which methods you want to use to carry out the materiality analysis and with which contact persons.
The ESRS and other frameworks as well as industry standards and findings from the business environment provide you with starting points for possible relevant topics.

3. identification of impacts, risks and opportunities (IROs)

A sustainability aspect of the ESRS is material and reportable if the associated impacts, risks oropportunities (IROs) are considered material.
Example: If the pollution of wastewater by substances used is a material impact, reporting must be made on the data points in the matching standard E2 “Pollution”.
It makes sense to identify and evaluate the IROs first, so that the material topics of the ESRS result from this at the end.
The bottom-up approach in detail:

• Identify all actual and potential impacts that your company or economic activities in the value chain have or could have on stakeholders(impact materiality or inside-out perspective).
• You should also define the financial opportunities and risks that could arise for your company from sustainability issues(financial materiality or outside-in perspective).
  Here you can also build on the results of the impact assessment.
• Sharpen the IROs to make them as specific as possible.

But how do you get to the IROs?

The IROs can arise from a wide variety of sources, such as industry or company specifics and discussions with various stakeholder groups.
Sparring with an external ESG consultant is helpful here.
In addition, internal data from whistleblower systems, occupational health and safety information or discrimination cases can also provide you with information on relevant ESG issues in your company.

4. coordination and sharpening of the IROs with the management

Coordinate the preliminary results with your company’s management.
The management level has a different view of the company and also knows other perspectives, such as those of investors, competitors or customers.
And finally, the dual materiality analysis should ultimately be supported by the entire company and form the basis for strategy development – management must also be on board for this.

5. definition of the main topics

In order to classify the IROs as material in accordance with the CSRD, they must be assessed according to the ESRS criteria.
Among other things, you evaluate the IROs according to

• Extent,
• Scope,
• Immutability and
• Probability of occurrence.

Attention: Depending on the type or category of IRO (e.g. negative impact or potential impact), different assessment criteria must be used.
In the course of the assessment, you also define suitable threshold values for your company.
These will help you to determine which IROs are actually material for your sustainability report.
This is because which ESRS standards are mandatory for your report depends on whether you have identified material impacts, risks or opportunities.
Topics for which you have not identified any material IROs do not fall under the reporting obligation.
At the end, you now have all topics that have been assessed as material from either a financial or impact perspective.
You can present the results graphically in a materiality matrix or in a classic table.
According to the CSRD, a graphical representation of the materiality analysis is not mandatory.

6. definition of measures

The double materiality analysis does not stand for itself: The material IROs initially serve as the basis for your sustainability report.
This shows the status quo and, over the years, the development of your company in the area of sustainability.
In addition, the materiality analysis is the basis for your sustainability strategy, in which you define targets and measures.
Incidentally, the ESRS already provides you with valuable input for the definition of targets and measures.

7. stick with it, adapt, repeat

A final tip from us: don’t see the double materiality analysis as a one-off project, but as a tool that will accompany you in your sustainability work.
If there are significant changes in the company, you will have to repeat the double materiality analysis in full.
You usually revise individual parts and adapt the analysis annually.
This keeps the key IROs up to date and makes your company’s developments measurable.

Support with the materiality analysis?
We have the experts for you

If you feel that professional and advisory support would help you make progress with the dual materiality analysis, we are happy to help.
We have already guided many clients through this comprehensive process and look forward to accompanying you on your sustainability journey.

* This information is summarized editorial content and should not be construed as legal advice. VERSO accepts no liability.