The ESRS Double Materiality Assessment Blueprint

At the heart of your sustainability reporting lies a critical process: the double materiality assessment. This step, mandated by the EU Corporate Sustainability Reporting Directive (the “CSRD”) and European Sustainability Reporting Standards (the “ESRS”), shapes the cornerstone of your company’s sustainability reporting. You'll find exclusive downloadable resources throughout the article

February 5, 2024

As you probably gathered from the buzz surrounding this topic, the double materiality assessment can be complex and time-consuming, especially for companies with cross-border structures, multiple affiliated entities (subsidiaries), and consolidated financial reporting. This is where we shine - at Codio Impact, we work hand-in-hand with exactly these companies: industrial champions, having an incredible impact on environmental, social and governance matters.

This is why we decided to kick off the creation of a “double materiality blueprint” and open a variety of internal sources designed to support the process of assessment. This includes our own guidance, step plan and supporting files on sustainability matters - a “ready-to-use” help for undertaking the double materiality assessment at your company. We wanted to be very open on this topic because of three important reasons:

  1. We want you to succeed. Simply put: if you get better and more sustainable in your practices, we all benefit. This is why we will always be rooting for you to bring the biggest change you can bring;
  2. We want to hear from you. What did your process look like? Did you add a step somewhere? Do you have any great tips on communicating with stakeholders? Sustainability depends on collaboration of many different stakeholders. So let’s kick off the best practices talk on all topics and upgrade this blueprint; and
  3. Double materiality assessment is just the beginning. While its importance cannot be overstated, we know that the bigger pain comes from collecting data, harmonizing your sources, and motivating your employees to collaborate on first-hand data capture. So let’s remove as many obstacles as possible and set you up for success.

Without further ado, our process is laid out below.

Where to start a Double Materiality Assessment?

Let’s start with the important definitions: Materiality, in the context of double materiality assessment, simply means the importance of a specific sustainability topic to a company and its stakeholders. With the rising number of sustainability performance metrics, prioritization of such material topics becomes key. 

This also means: whether a sustainability matter will be material for your company depends on many factors such as the industry you operate in, geographic location of your company (and its subsidiaries), stakeholder expectations and many more. 

In case your company is issuing a consolidated sustainability report, you need to do the double materiality assessment for the entire consolidated group of companies. While the scope of sustainability reporting may differ based on the matter at hand, try connecting it as closely as possible to financial reporting. If there are significant differences between material matters at group level and such matters of one or more of its subsidiaries, the information you report on needs to be presented in a specific, disaggregated way. This is called ‘subsidiary exemption’, but practically it leads to disclosing information of different subsidiaries, countries or businesses separately.  

Take an example of different business activities in different units of the group: in case your company produces certain products in one subsidiary, while it provides consulting services in the other - materially relevant topics may not be the same and equally applicable to the entire group. Production facilities may need to include topics such as pollution, worker health and safety, biodiversity and more, all stemming from the nature of the production processes. On the other hand, consulting can have more impact on data privacy, training and education of employees, as well as ethics and governance topics.

Going back to the assessment process: Double materiality, as outlined by the ESRS, involves considering two important dimensions. 

The first one is the Impact Materiality, which means assessing a company's impacts on environmental, societal, and economic aspects. This dimension focuses on the effect the company has on sustainability matters and is also known as the “inside-out” perspective. 

The second part of this process includes the assessment of Financial Materiality, or how sustainability matters affect the company's cash flow and financial value creation. This is also known as the “outside-in” perspective: what are the financial risks and opportunities that a concrete sustainability matter poses for a company?

It is important to assess the concrete sustainability matter from both of these perspectives, taking into account the different effects it can cause. 

Let us take carbon emissions as an example: emissions of carbon can have an effect on climate change, local air quality, or public health (Impact Materiality). From a financial perspective, increased carbon emissions can present a financial risk to the company because of frequent regulatory changes or increased carbon pricing (Financial Materiality).  

Now to make it even more concrete: with the double materiality assessment, you take each sustainability matter and rate its sustainability impacts, risks, and opportunities (“IROs”) on the scale of their significance to your company. Only the most important (i.e. material) matters will have to be included in the sustainability report. In practical terms and if done right, eliminating the irrelevant matters should reduce the scale of your reporting and help guide you towards the matters you have some control over. Ideally, these are the sustainability matters your organization can improve on.

DMA steps
Overview of relevant steps during the DMA

Our approach to the Double Materiality Assessment

At the beginning of each process, we like to prepare a simple step plan to help us determine responsibilities and guide us through necessary actions while undertaking the process of double materiality assessment. While our step plan presents this in a more granular way, there are four important phases to keep in mind:

1. Preparation Phase

This is the phase in which you get to create a list of sustainability matters that are the most relevant to your company and its value chain. 

We have curated an extensive list of sustainability matters aligned with the ESRS and covering environmental, social, human rights, governance, and sustainability factors. Based on this list, you can select those that are most applicable to your company, and add any additional matters that are specific to your organization.  

While we wait for the EU to issue industry-specific topic lists (a few years from now) to guide you on moving from long to short lists of sustainability matters, we included example lists of topics for two specific industries: waste and utilities and construction. As there are very few examples of double materiality assessments under the ESRS, these are just the results we have seen in practice - so please do not take it as the final word on the matter and go through the long list from the perspective of your own company. 

Your final outcome should be a short list of topics that may be materially relevant for your company, based on the industry you operate in, territory you are covering, and any specifics of your business. When in doubt: rather leave this list longer, than taking any potentially relevant topics away. 

2. Stakeholder Engagement Preparation

Identify your company’s key stakeholders, as the views and opinions of these groups have to be incorporated into the double materiality assessment.

To help you identify your key stakeholders, Codio Impact compiled a comprehensive list of potentially affected stakeholder groups and the best ways to engage with each group. Based on this you can easily and quickly identify which are the key stakeholders for your company and decide how to contact them, moving you onto the next phase of the process.  

Again: when in doubt, rather try to engage with more stakeholders than accidentally omitting some. 

3. Double Materiality Assessment

This phase forms the core of your analysis, and it takes some time and preparation.

Your organization’s team is the key component of this process: include management, sustainability/CSR team, finance department and anyone else who may have valuable insights. Your task is to identify the impacts, risks and opportunities associated with each of the relevant sustainability matters selected in the preparation phase. These impacts, risks and opportunities then have to be rated on specific criteria set-up by the ESRS to determine whether they are material. 

We would suggest that you gather all of the relevant people in one room and discuss the sustainability matters from your short list of potentially relevant topics. For each of the matters identified:

  • Discuss impacts of this sustainability matter on the environment and wider society, and 
  • Which financial risks and opportunities such sustainability matter can present for your company.

While the ESRS does give some guidelines, it does not mandate exactly how the assessment has to be performed. To help you run through this phase, we have set up scoring sheets for both impacts, and risks and opportunities

Now, this is where our collaborative blueprint comes in handy and we will update this process based on our own experiences, but also your feedback - so don’t be shy to tell us how this process runs for you and what were some “AHA” moments for your team. 

4. Stakeholder Validation

Ask your key stakeholders, identified in Phase 2, for their views and opinions on the sustainability impacts, risks and opportunities you identified in Phase 3. 

Incorporating the views and opinions of key stakeholders is a vital part of your double materiality assessment and can change the result of your internal assessment. Do not skip this step: even in cases when there are too many stakeholders, the quality of your double materiality assessment depends on whether you managed to ask and understand key inputs on this topic. We have heard some significant perspectives from included stakeholder groups and witnessed some great synergies being born.

One more reason to put effort into engaging your stakeholders: after finalizing your double materiality assessment, your job has only just begun. You will need to collect data on every single topic you identified as material, and some of this data will come from your stakeholders (think of your employees: they will have to participate in the data collection process). By including them timely, you will give your stakeholders a platform to speak about what matters to them, and by that, to your organization as well. This makes for a strong intrinsic motivation to contribute to accurate and timely data collection during the process of reporting. 

5. Finally: Transfer your double materiality assessment results into structured data capture

As a final step of a well-performed double materiality assessment, you need to start collecting and analyzing your company’s data. We have briefly touched upon that above, but some of your considerations should be:

  • Are you reporting on a consolidated or individual basis?
  • How are you consolidating your group, operationally or at-equity basis?
  • How are you disaggregating and presenting your information? 
  • Do you want to report governance and strategic data on the level of the group, or each of the subsidiaries?
  • Do you need to capture data for any other reasons (think: certifications, such as EcoVadis, BREEAM, Sustainalytics, UN Global Compact and more)? If yes, can that be managed together?
  • Do you need to prepare your data for any type of bank or customer request?
  • How frequently do you want to capture your data?
  • How can you automate the data collection process?

Unfortunately, due to the complexity of different companies, these questions cannot be easily answered and there is definitely no “one-size-fits-all” solution. However, for these and many other questions we have an exceptional team making sure you know exactly where to start with your reporting journey. 

Want to learn more about how we can help you perform your double materiality assessment?

At Codio Impact, our expertise ensures a robust, compliant and auditable double materiality assessment aligned with ESRS standards. We are happy to assist you with your assessment through data-driven support and individual workshops, and help you perform an ESRS compliant double materiality assessment while saving time, effort and money. If you would like to know more about how we can help you, please contact us here.


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