Since the adoption of the corporate sustainability reporting directive (CSRD) by the EU parliament and council and the first draft of the European Sustainability Reporting Standard (ESRS) in April 2022, the final ESRS draft has now been released to the European commission. The changes incorporate more explicit obligatory disclosures on general disclosures, climate change and workforce, as well as a reduction of the topical standards from 11 to 10.
The application of the regulation will take place and become mandatory for the financial years starting:
In just 5 days, find out the most pressing gaps and define the right priorities to both comply with the regulations and leverage CSRD for strategic planning. Download our Guidance on CSRD-Readiness Assessment & Summer Package on top of the page.
Applying the double materiality approach, has become mandatory under CSRD. Therefore, Bas Nuijten touches upon how to navigate 3 key challenges, when upgrading from single to double materiality.
1. Stakeholder Selection, Business Model & Value Chain perspective
Initially identifying and engaging with the right stakeholders (internal and external) and incorporating their insights is crucial to assess business impact. Applying weighted factors to each stakeholder group will support in determining the most material topics based on their importance to the business. A forward-looking approach, considering future (new) business segments and potentially changing geographical focus is of high importance as those elements can have consequences on the current selection of ESG topics.
2. Assessing business impact, what is material?
The ESRS has described a clear assessment methodology to quantify the impact materiality (e.g. the impact an organizations activities and value chain have on society and environment) and the financial materiality (e.g., the financial impact of ESG issues on the organization itself). In the case of impact materiality, the methodology examines scale and scope of selected positive impact topics and additionally the “irremediability character” when it comes to negative impact topics. On the flipside, when quantifying financial materialities, these will be assessed on their likelihood of occurrence and potential size of financial effect, after categorizing whether impacts cause a financial risk or opportunity. Based on organizations predefined thresholds, the resulting scores and quantitative data is consolidated, to finally help determine if a topic is material to an organization.
3. Creating value beyond reporting and compliance
Looking at double materiality from a strategic angle, conducting a driver analysis will help answering the question: where, within both the value chain and the organization, companies should focus their efforts to maximize ESG performance. By defining SMART targets and appropriate key performance indicators, progress can be measured. Closing the loop back to our first key challenge above, it is important to reengage with organizations’ most salient stakeholders to collect relevant ESG Data and further streamline the process.
Focusing on the S of ESG, Clodagh Connolly, global director of business for societal impact (B4SI) shares valuable insights into overcoming the challenge of measuring and managing social impact by using the B4SI Framework.
During the webinar she explained that within CSRD, the Social topics are specified quite clearly into 4 categories, which are then divided into specific issues and matters. CSRD demands the following disclosures in regards to those topics are:
With the latter two being the most challenging requirements for many organizations working within the S.
The B4SI Framework presents three categories of social impact activity:
1. Community Investment Route: donations to and partnerships with community organizations.
2. Business Innovation for Social Impact Route: Developing or adapting core business activities for defined social impact.
3. Procurement for Social Impact Route: diverting procurement spend to suppliers that aim to have a social impact.
These activities will then be evaluated by breaking them down into: Committed inputs, like contributions and investments, committed outputs, like social output, business output and leverage and achieved impacts, like social or business impact and commercial return.
Through this Framework organizations can manage their impact on material issues, by identifying achieved results for their stakeholders and the organization. Improving social program deliveries and their articulation to a key audience.
Would you like practical tips to accelerate your double materiality approach?
Check our 3 ESG Acceleration Tips for 2023.
Materiality support for your organization
At Finch & Beak, providing organizations with materiality support to prepare for compliance with ESRS through:
If your organization requires support on its materiality journey, reach out to Gijs-Jan Groeneveld, at Gijs-Jan@finchandbeak.com or call +31 6 28 02 18 80 to discuss how Finch & Beak can support you in meeting your ambitions.