5 steps to a double materiality analysis

The EU's Corporate Sustainability Reporting Directive (CSRD) ushers in a new phase of sustainability reporting by obliging companies to report openly on their sustainability-related strategies, measures and targets. Supported by the European Sustainability Reporting Standards (ESRS), the CSRD aims to create standardized and comparable reports. A central component is the double materiality analysis (DWA), which assesses the company's environmental impact as well as the financial impact of environmental and social factors on the company.

In this article, we offer you detailed instructions on how to implement the double materiality analysis methodically and step by step. Further information on the double materiality analysis can be found here.

Step 1: Preparation for the double materiality analysis

A. Understanding CSRD and ESRS: As the dual materiality analysis is implemented specifically for each company, it is important as a first step to develop a thorough understanding of CSRD reporting, including ESRS and the dual materiality analysis. Workshops and special courses with sustainability experts, such as those offered by Planted, can play an important role here. This process support is helpful as the review of the double materiality analysis will be subject to auditors in the future.

B. Assemble an internal team: Forming an interdisciplinary team is critical to effectively gather the data and knowledge required for the double materiality analysis. Clarify who is responsible for which area. This includes experts from different areas such as sustainability, accounting, facility management and HR. 

An internal control system should also be set up so that at least two independent opinions are involved in the identification and assessment of risks and opportunities. External consultants can also be consulted. 

Step 2: Start of the double materiality analysis

An in-depth understanding of the corporate context is necessary in order to identify the effects, opportunities and risks as well as the relevant stakeholders. 

A. Business and stakeholder mapping: The company should gain a comprehensive overview of its business model, business relationships, cost structure, target groups and other relevant aspects.

B. Stakeholder mapping and integration: In addition to the internal analysis, all potentially relevant external stakeholders should be identified. These include business partners, investors, banks, suppliers, employees, NGOs and others. 

Planted supports companies in preparing for this process, including business model mapping and stakeholder identification.

Step 3: Identification of impacts, risks and opportunities (IROs)

In order to identify a sustainability aspect of the ESRS as material, it is important to consider the associated impacts, risks and opportunities (IROs).

A. Deciding on the approach: Companies must decide whether to take a top-down or bottom-up approach to identifying their specific sustainability aspects. 

• Top-down approach: Sustainability aspects from the ESRS table are used to identify IROs for sub-themes and sub-sub-themes (e.g. air pollution). Companies supplement this with company-specific topics based on the results of due diligence investigations and the use of frameworks and sector standards such as the Global Reporting Initiative (GRI) or the International Sustainability Standards Board (ISSB). The involvement of relevant stakeholders in this process is also crucial.
• Bottom-up approach: Companies first analyze internal business processes, supplement the results with external standards and frameworks and involve relevant stakeholders. Finally, the results are compared with existing topics and sub-topics in order to obtain a comprehensive view of sustainability aspects.

B. Impact and financial analysis: The impact analysis should describe the company's current and potential impacts on the environment and society. The financial analysis focuses on the risks and opportunities for the company's financial position as a result of the environment.

The IROs can come from a variety of sources, including industry-specific and company-internal areas as well as from stakeholders. In addition, internal data from various systems, information on discrimination cases and occupational health and safety data contribute to the identification of relevant ESG issues.

Step 4: Definition and assessment of impacts, risks and opportunities (IROs)

For a CSRD-compliant classification of IROs as material, it is necessary to assess them in accordance with the ESRS criteria. For this purpose, the company defines various assessment criteria from 1 to 5 or time horizons. 

In the phase of assessing the impacts, risks and opportunities as part of the double materiality analysis (DWA), all identified factors are comprehensively evaluated. This includes the application of predefined threshold values and optionally includes the involvement of key stakeholders in the assessment process. An internal control system (ICS) with the dual control principle is used to ensure a multi-layered and independent assessment. The result of this assessment defines the material impacts, risks and opportunities as well as the key sustainability aspects and reporting standards that must be presented in the CSRD sustainability statement.

Step 5: Documentation and reporting of the materiality analysis

After completion of the DWA, a detailed documentation of the methodology, procedure and results is required:

• the assessment process, in accordance with ESRS 2 IRO-1
• and its result, according to ESRS SMB-3 and ESRS 2 IRO-2

This information is necessary to fulfill the reporting obligation and to enable external auditors to review the declaration. The results of your analysis can be presented either graphically in a materiality matrix or in a traditional table. According to the CSRD, a graphical visualization of the materiality analysis is not mandatory.

Implement materiality analysis validated by auditors

The implementation of the CSRD and in particular the double materiality analysis requires careful planning and a comprehensive assessment of the company's impact. By following these steps, companies can not only meet regulatory requirements, but also define their sustainability strategy, including defined targets and measures, on the basis of the double materiality analysis.

Planted supports your company in the effective implementation of the double materiality analysis through specialized workshops. This process has been carefully developed by our in-house sustainability experts and validated by independent auditors. Do you need support? We look forward to hearing from you.

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