The Corporate Sustainability Reporting Directive (CSRD) has changed the way that EU companies (and organizations doing business in the EU) must report their sustainability-related activities.
A key element of CSRD is double materiality, which involves evaluating and reporting on the financial, societal and environmental impact, risks and opportunities of sustainability activities within an organization.
This is important to understand as it is not something that most companies currently record, or are even aware of in some cases. But it is now crucial to provide the right levels of corporate transparency and accountability.
Getting up to speed with double materiality now will save a lot of time and effort later.
How is double materiality measured?
Double materiality brings together two measurable elements of business operations: impact materiality and financial materiality.
Impact materiality is concerned with how your company’s actions affect people, society and the environment. It considers every area of your operations across the value chain, from suppliers to customers.
Financial materiality looks at how sustainability activities can affect your company’s financial operations and performance. It examines the associated risks and opportunities that could influence your cashflow, profits, funding, and overall monetary health.
Put simply, impact materiality audits factors that are material to society and environment; while financial materiality audits factors that are material to the business.
It’s about more than just compliance
Adopting double materiality in your reporting enables you to experience a much more holistic view of these sustainability effects, so you can measure impact and plan more proactively going forward. Yes, it will satisfy your CSRD compliance demands, but it will also benefit your business in a number of ways.
- Newer insights: It will provide new insights and knowledge that you can leverage to modify the way you manage things, to improve your efficiency and ensure you are more resilient
- Stakeholder trust: It will give you greater evidence and feedback to build deeper trust and better relationships with your shareholders and stakeholders, to showcase your achievements
- Better transparency: It will create more transparency throughout your business helping drive a positive perception and strengthening your long-term reputation in the marketplace
How to implement double materiality for CSRD
Now we’ve established the importance of double materiality from a compliance perspective, and the additional benefits it brings to your business, let’s look at how best to go about the process.
Logically, it makes sense to find out your current material situation and performance – in order to establish where you need to get to. So, start by conducting comprehensive materiality assessments to clearly identify and evaluate your business’ impact and financial materiality.
Once identified, disclose the steps you took and the measures you made to arrive at your outcome (as this all helps to ensure transparency). Include material impacts, risks, and opportunities.
