Double Materiality Analysis for the Corporate Sustainability Reporting Directive (CSRD)

In 2019, the European Commission formally cited double materiality as the approach organizations should take to identify and manage ESG risks, including climate risks. The double materiality approach is now embedded in the European Sustainability Reporting Standards (ESRS), which apply to companies covered by the Corporate Sustainability Reporting Directive (CSRD) which requires that sustainability reporting shall be based on double materiality.

Double materiality covers both impact and financial materiality. Impact materiality pertains to the material information about the company’s impacts on people or environment related to a sustainability matter. Financial materiality, instead, pertains to the material information about risks and opportunities related to a sustainability matter.

Impact materiality and financial materiality are often intertwined. The organization’s impacts on people or the environment, combined with changes to strategy, including investments, as well as management decisions made to address such impacts may give rise to risks and opportunities.  Material risks and opportunities generally derive from impacts and dependencies. 

How is the materiality assessment performed?
The ESRS do not mandate how the materiality assessment process shall be designed or conducted by an organization. This is because no one process would suit all types of economic activity, organizational structure, location of operations or upstream and downstream value chains of all organizations applying the ESRS.

Intertek’s experts support companies designing a single process that reflect both the impact and financial materiality perspectives, as well as the interconnections between the two, by following the next steps:

1. Understanding the context by developing an overview of the company’s activities and business relationships, the context in which these take place to help identify particular sources of IROs and an understanding of its key affected stakeholders that may be impacted by the company’s own operations and upstream and downstream value chain.
2. Identification of the actual and potential IROs related to sustainability matters. In this step, we help you identify the material IROs relating to environmental, social and governance matters across your own operations and in its upstream and downstream value chain. The outcome will be a ‘long’ list of impacts, risks and opportunities for further assessment and connect them to the corresponding IROs.
3. Assessment and determination of material IROs related to sustainability matters. In this step, we apply the criteria for assessing impact and financial materiality, in order to determine the material actual and potential impacts, and material risks and opportunities. This then forms the basis for determining material information, based on the ESRS topical disclosure requirements.
4. Following the materiality assessment process, the company is now ready to report the assessment process and its outcome based on:

Description of the processes to identify and assess material impacts, risks and opportunities (ESRS 2 IRO-1); 

• Material impacts, risks and opportunities and their interaction with strategy and business model (ESRS 2 SBM-3); and
• Disclosure requirements in ESRS covered by the company’s sustainability statement. The company shall also disclose how it has determined the material information to be disclosed, including thresholds and criteria used to assess such information (ESRS 2 IRO-2).

Intertek’s experts will work closely with the company’s top management, main process owner, ESG technical representatives, sustainability managers and project managers as well as other parties involved throughout the 4 steps mentioned above.

Supporting your organization to Understand the Double Materiality Assessment Process
Before starting to design the process that reflects both the impact and financial materiality perspectives, as well as the interconnections between the two, Intertek experts will make sure that your organization understands ESG-CSRD by providing an in-depth session which will cover the following topics:

• Benchmarking assessment, context analysis and stakeholders definition
• ESG topics definition for survey’s preparation for stakeholders
• Management of survey submission for stakeholders
• Internal evaluation of double materiality
• Management of material impact as well as relevant risks and opportunities versus the business progress
• Awareness and internal diffusion of the Sustainability concept across the entire organization, including materiality and financial topics
• Materiality Matrix Issue and Material Topics definition (threshold set-up)

Intertek’s learning approach will help you leverage top management and employee’s engagement and commitment towards Sustainability, create employees’ awareness of ESG, how to integrate your management systems and to update your management tools to please CSRD’s demands.