Keep track of the key components of double materiality analysis

With the dual materiality analysis being a critical part of upcoming sustainability reporting requirements, it is crucial for companies to understand its key components: impact materiality and financial materiality. This article explores these key aspects to provide you with the knowledge you need to prepare for future reporting requirements. 

This text is a republication of the article "Double materiality analysis - key points you need to be aware of" published on Environment & Development 2023-10-30.

The new EU directive, CSRD, strengthens sustainability reporting requirements and aims to increase the transparency, quality and comparability of sustainability data. This will give stakeholders a clearer and more detailed view of a company's sustainability performance.

To help companies with CSRD, the European Sustainability Reporting Standards (ESRS) are to be followed by all companies reporting under CSRD. It is in ESRS 1 that the requirement for a double materiality analysis is explained and through that analysis the basis for the company's sustainability reporting is set.

Double materiality analysis and the two dimensions

Dual materiality is divided into two parts: impact materiality and financial materiality. An issue is considered material if it meets the requirements for either impact materiality, financial materiality or both.

• Impact materiality: This aspect focuses on the company's impact on sustainability issues and takes an inside-out perspective. It includes the assessment of both positive and negative impacts that a company's activities have on people and the environment.
• Financial materiality: This dimension considers how external sustainability issues affect the company financially. The starting point is based on identified risks and opportunities linked to various sustainability issues. A sustainability issue is material from a financial perspective if it causes or may cause a material financial impact on the company's performance.
  
  In the financial materiality process, information is identified that is of interest to investors, lenders and the like when assessing the impact of sustainability issues on, for example, the company's cash flow, performance, cost of capital or financing asset.

The result of the double materiality analysis shows how the company impacts sustainability, what risks and opportunities exist. It also points out the most important sustainability issues to report on. It is important to note that this assessment is not limited to the company's own operations. It includes the entire value chain, from suppliers and distributors.

The benefits of a system support in double materiality analysis

A system support can facilitate the implementation of a double materiality analysis according to the CSRD and ESRS guidelines and requirements. A system support can offer:

• Time savings and increased accuracy in the analysis process
• Centralized storage management of data relevant to the analysis.
• Standardization of materiality assessments using built-in and templates.
• Support for developing reports and documentation to communicate material sustainability issues both internally and externally.
• Support from a strategic and communication perspective.

Read more about how Stratsys product for CSRD sustainability management could help you with your double materiality analysis work, or contact us directly if you would like to know more.