In a recent post by Greenomy, the firm dug deeper into the topic of double materiality and its implications on CSRD reporting.
Double materiality serves as a cornerstone concept for CSRD (Corporate Sustainability Reporting Directive) by capturing two dimensions: impact materiality and financial materiality.
Impact materiality is concerned with a company’s actual or potential influences—both positive and negative—on the environment or people, over various time spans. This includes impacts that emanate from the company’s operations, value chain, products, services, and business relationships.
Financial materiality, on the other hand, zeroes in on sustainability issues that pose risks or offer opportunities capable of affecting a company’s financial status, performance, and even its ability to secure financing. These two dimensions are deeply interrelated; a sustainability impact could be financially material or become so over time. The dual nature of these materialities shapes the focus of reporting within the CSRD framework.
Incorporated into the CSRD, double materiality is increasingly attracting the attention of investors and stakeholders. They are keen to understand not just the company’s influence on people and the environment but vice versa as well. This twofold assessment informs the European Sustainability Reporting Standards (ESRS) to which companies will adhere. While two standards—ESRS 1 and ESRS 2—are mandatory, the remaining ten topical standards require reporting only if considered material through a Double Materiality Assessment (DMA).
DMA also allows for granular reporting. In metrics, if a particular data point within an ESRS is not considered material, it can be omitted. For qualitative disclosures, like policies and actions, materiality assessments guide what needs to be disclosed. If a topic is found to be non-material, the company can still offer a brief explanation.
Companies embarking on DMA must consider several elements, including the scope and granularity of their assessments, which subsidiaries are to be included, and how information will be disaggregated. Stakeholder engagement also plays a critical role. The ESRS demands disclosure on how stakeholder input shapes a company’s strategy, policies, and actions.
Defining and assessing impacts, risks, and opportunities are crucial in DMA. These three elements underpin ESRS-based sustainability reporting. Companies need to establish thresholds for what is considered material and worthy of reporting.
To sum up, double materiality serves as a strategic tool that can guide companies in their sustainability reporting, giving them a structured way to evaluate material impacts, risks, and opportunities. It also enhances decision-making and transparency, ultimately easing the process of CSRD compliance.
Read the full post here.
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