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What does double materiality mean?
The EU has introduced the CSRD (Corporate Sustainability Reporting Directive). 15,000 companies in Germany must now prepare sustainability reports. Their content is determined by the principle of materiality. The introduction of the CSRD enshrines dual materiality. Read what’s behind it.
Definition: Was bedeutet doppelte Wesentlichkeit?
Double materiality means: it must be stated
how sustainability aspects affect the company (outside-in perspective)
AND
how the company affects society and the environment (inside-out perspective). The dual materiality will change the materiality principle used in Germany in particular and lead to significantly more information being relevant to reporting and CSR reports becoming more meaningful as a result. In future, companies will have to state both perspectives – independently of each other – in the sustainability report. Previously, both aspects had to be fulfilled at the same time. In the case of the outside-in perspective (“financial materiality”), disclosures must be made that are necessary for an understanding of the company’s business performance, results or position. Particularly in the world of finance, this perspective is often the only one considered today and referred to as “ESG” or “ESG-related risks” – in other words, only the risk perspective is considered from a sustainability perspective. With the inside-out perspective (“environmental and social materiality”), information must be provided that is necessary for an understanding of the impact of business activities on sustainability aspects. In short, it must be explained: What impact does my company have on the planet and society?
The outside-in perspective
Many companies have so far focused on the outside-in perspective, as it represents a form of risk management. This field will also be covered in the future. The information is primarily aimed at investors. From the outside-in perspective, companies must disclose the following information:
- How do external developments affect the business model, strategy and sales, among other things? External developments include unexpected weather events, for example, but also stricter regulatory requirements.
- Industry-specific topics also play a role: Are there sustainability aspects that have already been identified by competitors, customers or suppliers?
- What are the main risks for the company, a product or a service? And how are they managed or mitigated?
The inside-out perspective
The inside-out perspective significantly broadens the view. Contact persons are not only investors, but also employees, consumers and environmental and social organizations. From the inside-out perspective, companies must disclose how their activities affect society and the environment. The impact of products, services and business relationships (including the supply chain) should also be mentioned here. Information is required on, among other things
Environmental issues:
- Climate impact
- Prevention and reduction of environmental pollution
- Environmental impact of energy use
- Biodiversity
Social:
- Health and safety in the workplace
- Diversity and equal treatment
- Human rights
- Social commitment
Governance:
- Management and control processes
- Combating corruption and bribery
The goal of dual materiality
With the introduction of the new CSR reporting obligation CSRD, the European Union wants to increase the scope of sustainability disclosures. This will make CSR reports more meaningful and comparable. The impact of the sustainability report will also be increased because the dual materiality contributes to a shift from a shareholder perspective to a stakeholder perspective. The CSR report is aimed at investors, but also at employees, customers and society.
* This information is summarized editorial content and should not be construed as legal advice. VERSO accepts no liability.
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