CSRD: what is double materiality and how to analyze it?
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Summary
The concept of dual materiality is essential for corporate social responsibility (CSR) and sustainability, integrating financial and non-financial aspects. CSRD aims to merge these dimensions in reporting, providing a comprehensive overview of corporate performance and responsibility. Financial materiality concerns key financial data, while impact materiality encompasses environmental, social and governance (ESG) issues. CSRD requires transparent disclosure to enable stakeholders to assess a company's overall impact. By managing these aspects, companies can reduce risks and seize opportunities for innovation and growth. Dual materiality analysis requires an ongoing commitment by companies to improve their sustainability practices and develop action plans aligned with these issues, with regular monitoring using appropriate reporting tools.
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Introduction
"Double materiality" is an important concept in the field of corporate social responsibility (CSR) and sustainability. This concept refers to the need to consider two important aspects of sustainability and corporate responsibility: financial materiality and impact materiality. This concept is one of the challenges of the CSRD, which encourages the transition of companies towards sustainable strategies.
![someone who analyses double materiality in CSRD](https://d-carbonize.eu/wp-content/uploads/2024/03/scott-graham-OQMZwNd3ThU-unsplash.webp)
Definition of double materiality
Double materiality is a critical aspect of ESG (environmental, social, and governance) reporting standards. CSRD aims to integrate financial and non-financial information to provide a more complete picture of a company's performance and accountability.
Financial materiality
The notion of "financial materiality" refers to financial information and its significant impact on the performance and value of a company.
Companies must provide accurate and relevant financial information in their annual reports, as this information is essential for investors, shareholders, and other stakeholders.
This information includes the following key financial statements:
- the balance sheet,
- the income statement,
- the cash flow statement,
- forecasting,
- etc.
Materiality of impact
The materiality of impact relates to the collection, evaluation, and disclosure of non-financial information. This includes environmental, social and governance (ESG) issues:
- greenhouse gas emissions,
- ethical governance,
- waste management,
- diversity and inclusion,
- etc.
The material impact issues, once identified and evaluated, are integrated into the company's reports. This information is disclosed following the reporting standards set out in the CSRD.
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Dual materiality analysis is a process that must be established over time.
![an hourglass showing that the analysis of double materiality must be carried out over time](https://d-carbonize.eu/wp-content/uploads/2024/03/paula-guerreiro-W2atfIRHDIk-unsplash-2.webp)
Double materiality in the context of CSRD
The CSRD requires companies to disclose financial and non-financial information transparently. This allows stakeholders to assess the company's overall impact on society and the environment while ensuring its performance.
Economic impacts
By addressing these double materiality issues, the company can reduce sustainability risks and exploit opportunities for innovation and growth.
Investors are increasingly aware of the importance of ESG issues, as they can have a direct impact on a company's long-term financial value. Financial materiality is relevant for stakeholders who want to understand how the business is evolving in the new sustainability-focused regulatory frameworks.
Social and environmental impacts
Dual materiality contributes to a more responsible and transparent management of corporate strategies.
Impact materiality aims to align the company's priorities with the expectations of its stakeholders, including investors, customers, employees, and society at large. This promotes better corporate governance.
It also aims to encourage companies to reduce their GHG emissions and reduce their environmental footprint.
Analysis of double materiality in a global strategy
The analysis of double materiality is a process that must be established over time. Companies must commit to the continuous improvement of their sustainability practices in response to the evolving challenges of double materiality.
Develop an action plan
Adapting to this notion of double materiality requires the definition of measurable, achievable objectives that are aligned with the company's activity. Decisions, investments, and business practices must take these issues into account. This includes initiatives to reduce environmental impacts, improve waste management, promote diversity and inclusion, and more.
Ensure continuous monitoring of reporting
The implementation of appropriate reporting tools ensures effective performance monitoring. Companies need to accurately track the evolution of their impact on the environment and society based on internal and external changes.
Double materiality analysis allows companies to prioritize their actions and meet stakeholder expectations.
The carbon footprint calculation software of D-Carbonize allows companies to adapt to these new challenges by supporting them in reducing their carbon footprint. It offers tools to measure GHG emissions in compliance with these new standards.