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How-to: Double materiality according to CSRD easily explained

With the Corporate Sustainability Reporting Directive ( CSRD for short), an important EU directive on sustainability reporting came into force in January 2023. From 2025, retroactively for the year 2024, companies in the EU must provide detailed information on non-financial topics such as the environment, social issues and corporate governance in their annual reports. The European Sustainability Reporting Standards, or ESRS for short, provide the direction in terms of content as a reporting standard in this regard.

Part of this is dual materiality, also known as double materiality: A crucial tool for identifying relevant sustainability topics in the company and the starting point for reporting.

Which companies are affected by the dual materiality analysis?

From 2024, all companies that already prepare a sustainability report in accordance with the Non-Financial Reporting Directive (NFRD) will have to report on dual materiality. 

Why dual materiality for sustainability reports?

As with financial reporting, sustainability reports should focus on relevant information about opportunities and risks that are important to readers, such as investors and the general public - referred to as "materiality".

As sustainability encompasses various ESG aspects (environmental, social and corporate governance), companies face the challenge of identifying which topics are truly material. In the past, it was therefore examined which sustainability topics may have financial risks for the company and are thus important for a non-financial report. For CSRD, this has changed and two perspectives are used to examine which sustainability topics are reportable: Dual materiality. 

What is the dual materiality analysis under the CSRD?

Dual materiality introduces a new way of thinking to reporting and looks at the materiality of sustainability aspects from different perspectives:

  • The "inside-out" perspective, also known as "impact materiality," considers the effects of corporate activities on people, the environment and society. Both the positive factors (e.g. protection of biodiversity) and the negative effects (e.g. water consumption, emissions) are considered.
  • The "outside-in" perspective, also called "financial materiality," looks at the impact of sustainability factors, such as climate change or resource scarcity, on corporate performance and future cash flow.

An issue is considered material if it either entails financial risks and opportunities for the company or has a significant impact on the environment and society. Thus, it already becomes reportable if it is classified as material from one of the two perspectives. 

How companies determine which issues are essential 

To determine which topics are material for companies, a double materiality analysis must be carried out. This process requires good preparation and the involvement of corporate management.

Matrix Double materiality analysis

At the outset, companies should consider which sustainability aspects could potentially be important. It is helpful to be guided by relevant standards and frameworks, such as the ESRS standards. Companies should also consider their supply chain, as sustainability issues may also be relevant there.

To identify the key issues, companies should include the perspective of their stakeholders. These can be suppliers, customers, employees and other affected groups.

In the best case, the process of double materiality analysis is transparent and the companies disclose how exactly they have carried out the analysis. Publication in the management report is mandatory anyway, which also results in auditing by auditors. It is therefore recommended that the analysis be professionally accompanied by consultants specializing in this area in order to avoid making mistakes.  

How often does a dual materiality analysis need to be performed?

In order to act in a CSRD-compliant manner, the double materiality analysis should be carried out anew each year. In this way, the topicality of the relevant issues can be ensured and reported on at the same time.

Ultimately, it is important that the frequency and timing of the dual materiality analyses are in line with the company's business objectives and commitment to sustainability. It is also advisable to involve experts in sustainability issues to ensure that the analyses are sound and up-to-date.

Why is the dual materiality analysis important? 

Dual materiality analysis helps companies identify important sustainability issues and use their resources more efficiently. It helps to meet stakeholder expectations and strengthen trust in the company. It also enables the identification and assessment of sustainability risks and opportunities. This is especially crucial for the publication of the sustainability report in the management report, which is new and mandatory due to the CSRD.

Conducting a dual materiality analysis can be complex, but it is worthwhile because it not only meets legal requirements, but also provides valuable insights for the further development of the sustainability strategy. A well-executed materiality analysis, as the basis for a sustainability report in the management report, is a competitive advantage for companies. In the financial market, the management report is an important criterion for investment and lending.

With Planted, we support companies in this process together with an auditor. In the form of a workshop, our experts work with the companies to develop the dual materiality analysis in accordance with the CSRD and incorporate the results of measures already taken, such as the calculation of the CO2 balance sheet or reduction measures. 

Do you need more information? Then get in touch with us and book a free demo.

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How-to: Double materiality according to ESRS simply explained