This is the 3rd in a series of 5 articles designed to provide an easy-to-understand CSRD materiality analysis. If you've read the first two articles, the concept should hold no secrets for you. For those who are already familiar with the principle, this should give you a bit more material.
1. Measuring double-materiality based on global, relevant and honest information
The report mentions that all activities that have or will have an environmental, social or economic impact must be taken into account for the materiality analysis. Whether or not these elements are relevant to investors who are directly concerned by this extra-financial report. So don't hesitate to map out a very broad range of risks and social issues.
The other key notion is the quality of the information. The information used and presented must be comparable, verifiable and comprehensible (article 52). Numerous articles in the summary note detail principles in an attempt to explain the information to be processed, as if the CSRD authors were anticipating the management's desire to deliberately conceal embarrassing data. The important thing to remember is: don't try to hide information. It's better to cover all subjects and assume your weaknesses than risk missing out on a risk or being exposed as a dishonest player.
Information must be sought from the entire value chain, downstream and upstream, from “direct or indirect business relations”. To this end, stakeholder consultation is widely recommended.
2. The absence of a precise method to measuring the double-materiality
The 1st article of this section, article 63, states that the CSRD does not impose or provide a methodology to produce a double-materiality assessment. According to the drafters, there is no single tool that can effectively measure all types of economic activity and structure. This is particularly true when it comes to the locality of operations or the notion of impact on value chain players.
In 2016, Rate A Company's methodology for questioning and engaging all stakeholders on CSR impacts was nonetheless fairly visible on the net. But our approach must have arrived a tad too early as we had to turn off the website's SEO due to the multiple threats sent by certain managers, outraged by the idea that their stakeholders could report their bad practices to a trusted third party. Fortunately, the French Sapin 2 law calmed things down, and today, this principle is included in the European regulations. Just goes to show, some companies really do need to be taught how to look at the horizon.
Good news for companies concerned by CSRD: Rate A Company enables you to assess the impact, risks and opportunities by questioning all stakeholders, anywhere in the world, on dozens of social, environmental and economic indicators.
As we saw in our article on CSRD in part 3, it's also important to beware of the "one stop shop CSRD solution", which very often take advantage of a lack of knowledge to sell hollow solutions that will consequently have none of the effects sought by the CSRD.
3. How can we measure the scope, the scale and the irremediability for the double-materiality assessment ?
To define the materiality of each sub-category, we need to estimate the scale, scope and irremediable character of the phenomenon.
To get an idea of the scale of severity, open scientific data provide some indications, particularly in relation to the urgency of a phenomenon. We know that rising temperatures and the number of microplastics in our ecosystems are endemic problems. Other phenomena may be more localized, such as the conservation of primary forests in Amazonia, Africa or Indonesia.
The professionalization of CSR professions and the integrity of convictions will make all the difference in terms of skills and the beneficial effects expected out of this exercise. For it will take a certain determination to seek out relevant information and synthesize hundreds of pieces of data related to the environment, the expectations and psychology of individuals in the sector, business practices, etc.
To give an example, if I'm a company that provides in-house coffee machines, I'll need to analyze the phenomenon of resource availability: coffee, possibly sugar, but also the cardboard cups essential to my business activities.
The production of coffee, sugar and wood often depends on foreign suppliers who are subject to local social, environmental and economic forces that you may not be aware of. So one is going to have to investigate to find and coordinate this information and data and put these elements into perspective from supply risk POV, but also from the pollution perspective : the one generated by company use of these resources. Depending on global volumes, the weight of this activity within my company, and the weight of my company within these global volumes, I will judge the scale, scope and the irremediability of the phenomenon.
To enable a more accurate estimate, it is therefore essential to consult the stakeholders in the value chain, as recommended by the CSRD:
- Stakeholders can provide you with the reality on the ground : how your activities directly impact them.
- They allow you to bring to your attention points that you may not have seen, such as anticipated price increases, production difficulties, etc.
- They give you the opportunity to work on the irremediable nature of the subject by collaborating with you on the implementation of new solutions.
Experience and knowledge of economic issues, as well as the ability to analyze and synthesize and liaise with the stakeholders will therefore be key elements to look for in copywriters.
4. Including all group subsidiaries in the materiality assessment
For groups, the IROs of subsidiaries need to be studied as a whole.
We explain: If I manufacture tuna, I can set up a subsidiary responsible for online marketing. This subsidiary will not be concerned by marine pollution. On the other hand, since the other subsidiary is responsible for fishing, the group will have to be accountable. In the same way, the prioritization of impacts can result from the accumulation of operations across all subsidiaries, even if, independently, a phenomenon may be more significant in only one subsidiary. The briefing note takes the example of a subsidiary that violates human rights: the economic repercussions may be felt by all the other brands.
