Table of contents
What is Double Materiality Analysis?
Double materiality analysis is a process of assessing and identifying issues that are significant both in terms of the organization’s impact on its surroundings and the impact of external factors on the organization. Double materiality is based on two primary criteria: financial impact and environmental and social influence. The foundation of this analysis is set by the European Sustainability Reporting Standards (ESRS) and the Materiality Assessment Implementation Guidance (IG 1), published by the European Financial Reporting Advisory Group (EFRAG).
Purpose of Double Materiality Analysis
The purpose of double materiality analysis is to evaluate the interdependence between an organization’s activities and environmental and social issues. It involves analyzing the organization’s impact on its surroundings and the influence of external factors on its operations, supporting regulatory compliance, risk and opportunity identification, and sustainable strategic decision-making.
Why is Double Materiality Analysis Important?
Double materiality analysis is crucial as it is an integral component of sustainability reporting. Its proper execution determines which ESRS indicators a company deems material and reports. For companies subject to audits, it is also a key element verified by external auditors. From a strategic management perspective, it enables a broader view of the organization, identifying impacts, opportunities, and risks arising from changes in the environment, including climate change.
Steps of the Double Materiality Analysis Process
The process of conducting a double materiality analysis involves five key steps:
- Organizational Assessment: A review of the organization’s process map, existing procedures, management systems, and its external environment (legal frameworks, value chain, stakeholders, industry). This step includes mapping the organization’s connections with other entities and analyzing interactions.
- Workshops with Employees: Conducting customized workshops to familiarize employees with ESG criteria within the organization’s context and identifying areas aligned with ESRS that are significant from various organizational perspectives. Employees, as key stakeholders, provide valuable insights into the organization’s actual functioning.
- Identification of Potentially Material Issues: Identifying sustainability-related topics based on themes and sub-themes outlined in ESRS regulations (e.g., AR16) and insights from prior stages of the process.
- Materiality Assessment: Evaluating materiality based on financial and impact criteria. Financial materiality is assessed through additional analysis of financial data, using predefined thresholds to identify economic events and stakeholders critical to maintaining the organization’s financial stability.
- Environmental Analysis and Stakeholder Dialogue: Supporting organizations in conducting stakeholder dialogues to ensure due diligence. Using organizational data, workshop outcomes, and environmental insights, a double materiality matrix is developed, incorporating risk evaluation.
The results of the double materiality analysis should be integrated into sustainability reports and strategic plans for upcoming years, including investment planning. They also serve as a basis for market communication, minimizing the risk of greenwashing allegations.
Benefits of Conducting Double Materiality Analysis
The primary benefit of double materiality analysis is ensuring accuracy and due diligence in preparing sustainability reports. The report reflects a series of actions undertaken, with materiality analysis as a crucial element for conscious and reliable data collection, creating audit trails, and providing justification to auditors or contractors on what is considered material and why. Employee and stakeholder involvement enables a multidimensional perspective on the organization’s operations.
How Long Does Double Materiality Analysis Take?
The process takes approximately two months. The exact duration depends on factors such as the level of formalization of the business model, the availability and responsiveness of stakeholders, whose participation is essential, and the complexity
of the organization’s value chain.
