A new era for materiality requirements
An increasing number of reporting requirements, like CSRD, are asking for a double materiality assessment.
However for many businesses, a double materiality assessment is a totally new concept (on top of all the other new concepts required under CSRD!)
To help you get to grips with it, we've put together this explainer on what a double materiality assessment is and why it's important.
What is double materiality?
1. Outside-in impacts: the impacts that the environment, context and /or society has on a business and its performance. This type of impact may result in financial, reputation, legal or operations risks.
This type of impact is also referred to as Financial Materiality.
2. Inside-out impacts: the impacts a business has on the environment and/or society and is sometimes referred to as Impact Materiality.
These types of impacts need to be considered within the wider context of planetary and societal boundaries.
Here is how double materiality applies to your business.
It’s necessary to consider both aspects of materiality, when identifying issues that might affect your business’ success.
A double materiality approach enables you to better understand your positive and negative contributions to society and planetary boundaries.
Another key concept within double materiality is feedback loops. A feedback loop is when a business’ impact on the environment or society, in turn creates a risk to the business.
For example: the higher a business’ carbon emissions, the greater the business’ contribution to climate change. This in turn contributes to the occurrence of more severe weather events which create financial risks to businesses through damage and loss of trading.
In 2023, UK businesses incurred £443 million of weather damages.
Another example is water pollution. The more a company discharges chemical compounds into a waterway, the greater the levels of pollution.The more polluted water is, the more treatment is required by utilities companies for it to achieve drinking water standard. The cost of this treatment is passed through utility bills to customers and businesses.
If you want to learn more about double materiality or want help conducting a CSRD disclosure or double materiality assessment, please get in touch at hello@bemari.co.uk
FAQs
How is double materiality assessed?
Double materiality assessment process involves looking at two sides of the coin: financial materiality (how sustainability topics impact the company’s financial health) and impact materiality (how the company affects the environment and society). In evaluation of the topics it is important to consider what impacts the business may have on any of its stakeholders (nature being one of the stakeholders) and what risks or opportunities might arise from the context in which the business operates. Consideration is also given to what information stakeholders might want to see disclosed, as it may affect their decision making.
By going through this process, companies can pinpoint the sustainability issues that they need to focus on in their strategy, reporting, and communication with stakeholders.
Is a double materiality assessment mandatory?
Double materiality assessment is a must-do for companies that fall under the Corporate Sustainability Reporting Directive (CSRD). If you're required to report under the CSRD, then you’re required to do a double materiality assessment – no getting around it!
How often should you do a double materiality assessment?
While you need to report under the CSRD every year, you need to revisit it but the process might not be quite as involved - it is important to ensure that no changes have occurred that would affect the topics.
Why is it difficult to assess double materiality?
Assessing double materiality can be tough because it requires a shift in approach from stakeholder perspectives and opinions to being guided by data driven insights, and this requires more expertise and research. Plus, navigating the complexities of global value chains adds another layer of challenge to the process as transparency of the value chains is really important to understanding the risks and impacts.
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