This article is the 2nd in a series of 5 articles simplifying EFRAG documents. In this one you will find the principles translated from the IG1 implementation guide dated May 2024.
1. The aim of double materiality is to measure the impacts, risks and opportunities - the “IROs” - of the ESRS based on environmental, social and economic matters. Whether these IROs are judged as future consequences or financial consequences, or both. This is what we call the double-materiality.
2. The double-materiality or “materiality” must take into account all the IROs that could have a direct or indirect impact on the players in the value chain, both upstream and downstream, in addition to considering the IROs that relate to the company's activities.
3. Once the company has identified an impact, risk or opportunity, the methodology of the relevant ESRS (climate, etc.) should be used to determine what information is to be considered and presented. If the ESRS is not sufficiently clear or precise, it will be necessary to use information on structure and common sense to know what would be relevant to preserve the organization and the living. With the report's principle of transparency, this is where we'll find out whether common sense is part of the company's DNA ;)
4. Over and above the results of the double-materiality assessment, and in line with the ESRS 2, the company must communicate its policy, actions and objectives. If these are not related to the IROs observed in the double-materiality, the company must write that it has no policy, actions or objectives related to sustainable development.
5. The ESRS do not provide an exact methodology to assess materiality. Each company is responsible for analyzing the impact of its activities on the environment and its performance, and for ensuring that its assessment methodology is appropriate.
6. Even if the methodology is not given, it will have to report the facts and circumstances by answering these questions:
- I have understood the context and the global stakes
- I have correctly identified the impacts, risks and opportunities described in each ESRS, its sub-categories and potentially others that may not have been listed.
- I have correctly identified and measured the possible consequences (severity, scale and irremediability) by materializing the IROs ; impacts, risks and opportunities for my company and for society.
- I have correctly reported all information
7. Dialogue with stakeholders helps to better measure IROs, and is in line with the international “due diligence” methodologies used by the CSRD. This dialogue with stakeholders should reveal the company's impact on these people and identify areas for improvement. However, ESRS 1 or 2 does not specify how these stakeholders are to be questioned, except to say that this must comply with the principles of transparency and impartiality.
8. The materiality of the impact must be assessed and presented in the report according to its severity or probability of occurrence. This means defining precise qualitative and quantitative measures to be used in reporting. The degree of severity (positive or negative) takes into account: the scale, scope and irremediable nature of the phenomenon.
9. As with impact, material risks and opportunities need to be defined both qualitatively and quantitatively, in order to better understand and anticipate the repercussions on economic performance, cash flow, access to financing or return on investment.
10. International benchmarks can help to better assess the company's negative impacts and their materiality.
11. If the company uses the GRI Universal standards, this provides a good basis for measuring the impact of each ESRS.
12. If the company meets the CSRD's ESRS requirements, then it should also be in compliance with the information expected in terms of sustainability reporting, be it IFRS (international accounting standards) or its sustainability spin-off: ISSB standards.
13. In producing its materiality report, the company must publish :
- How it has identified and measured the materiality of IROs based on ISSB topics and sub-categories.
- How these impacts, risks and opportunities interact with the company's strategy and business model
- The company's policy and objectives with regard to the impacts, risks and opportunities of each ESRS
The list of 94 topics to be taken into account in double materiality
Each ESRS contains sub-topics, then sub-sub-topics. These need to be taken into account not only when estimating the IROs of its activities, but also those of its value chain. You'll find all the sub-topics here.
Not all subjects or sub-topics may have been listed among the ESRS. By analyzing the company's activities and their consequences, if an impact, risk or opportunity has not been anticipated by EFRAG, the paragraph 31 stipulates that the company must detail the materiality of this reality based on the structure's activities. While the CSRD is the cornerstone, the topics are not limited to these subjects, and must be dealt with on the basis of common sense and relevance.
Did you know?
Since 2015, Rate A Company has been a pioneer and leader in CSR with stakeholders. This approach, which is only timidly included in the CSRD text, is nevertheless one of the methods recommended during due diligence and in the recommendations of international institutions such as the UN and the OECD during risk prevention. Rate A Company's approach enables extremely precise ESG impact measurement on over 80 indicators. In particular, it makes it possible to engage stakeholders in the company's CSR strategy and to reconnect with performance. Its unique methodology combines the efficiency of online rating, the rigor of international certification and motivational mechanisms based on the theory of self-determination.
To find out all you need to know about double-materiality, use your search engine to find the following articles:
1. The CSRD double-materiality principle easily explained
2. Summary of the principles of double-materiality, the ESRS and their sub-categories
3. What is the methodology for measuring the double materiality of CSRD?
4. The importance of consulting the stakeholders for the double-materiality assessment
5. The 3 steps to write a CSRD materiality analysis
