What does double materiality mean for your business?
#CSRD • 16/08/2022 • Marije JennesDoing business with an eye to the future implies strategic management and reporting on what matters to your company, to society and to the planet. A double materiality analysis, soon mandatory for large companies, makes this transparent and forms the foundation of your sustainability policy and reporting. In this blog article you can read about what double materiality is and how to get started.
1. What is materiality?
Material' is a synonym for 'relevant' or 'significant': something material matters. In the context of sustainability, material topics are subjects that are related to sustainability and that matter to your business operations, the environment or people. If you want your organization to be sustainable and resilient for the future, it is best to build your business strategy on the basis of your material impacts.
Suppose your company pumps up groundwater for use in industrial processes. Groundwater is a material topic for your company, because it affects your operations and the environment. In your business strategy, you logically outline a water policy: how can you save water, which alternative water sources can you use, etc. This way, you avoid being denied a permit to pump up groundwater because the impact of your company on the groundwater table is too big.
Materiality is also an important criterion for your sustainability reporting. A good sustainability report covers all topics that are relevant and therefore material to your organization. By defining the material topics, you lay the foundation for prevention, impact management, strategic decisions, setting targets, action plans and monitoring your impacts through KPIs (key performance indicators). By reporting clearly on your material impacts, you give stakeholders insight into your business and meet society's demand for greater transparency in business.
2. What is double materiality and why is it important?
The Corporate Sustainability Reporting Directive (CSRD) will soon require large companies to base their sustainability reports on the principle of double materiality. Double materiality takes into account two perspectives: impact materiality and financial materiality:
- A sustainability topic is material from the impact perspective if it reflects a significant impact of the company on people or the environment. The greenhouse gas emissions of a steel company or child labour in the textile industry are themes that are material from an impact perspective.
- In the context of sustainability reporting, a sustainability theme is material from a financial perspective if it can cause a significant impact on the company's cash flow and value. That impact can be both negative (in the form of a risk) and positive (an opportunity). For example, climate change can pose serious financial risks to a company. Just think of flooded industrial sites. It can also be a financial opportunity, for example if you save energy to emit less CO2. The trend towards healthy food can be material from a financial point of view for a producer of soft drinks.
A topic can be relevant from both perspectives. For example, a food company may have a share in biodiversity loss through its use of crop protection products, but global biodiversity loss may in turn affect company revenues. A food company's greenhouse gas emissions contribute to climate change on the one hand, but extreme weather conditions due to climate change can also cause crop failures, which in turn reduce company revenues. On the other hand, the emissions caused by the company lead to further global warming.
By mapping your impact and financial materiality, you get a complete overview of all impacts, risks and opportunities related to sustainability. Double materiality strengthens the link between sustainability reporting and financial reporting, and helps you better integrate sustainability in your business strategy. Finally, it helps banks, insurers and investors to get an objective and complete picture of the financial risks and opportunities of a company.
3. When does dual materiality become mandatory?
As a result of the CSRD, more than 50,000 companies in Europe will soon be obliged to carry out a double materiality analysis. The exact date from which this obligation applies differs per type of organization: for public-interest entities it is 2025 (reporting year 2024), for large companies 2026 (reporting year 2025) and for listed SMEs 2027 (reporting year 2026).
Also read: Ready for the CSRD in 5 steps
4. Getting started with double materiality
Are you facing the challenge of performing a double materiality analysis for your company for the first time? Then it's best to get expert help. We developed a step-by-step plan for double materiality that involves the company's top management, all employees and your external stakeholders, and is fully CSRD-compliant. The result is a list of material topics that form the basis for your company's future strategy and sustainable action plans.
Would you like to know how you can apply the concept of double materiality to your business? Do you need help in determining the double materiality or with your stakeholder survey? Contact us at mail@pantarein.be or ask for one of our consultants at 016 60 11 17.
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