Conducting a double materiality assessment is actually the essential first step to comply with the EU's new Corporate Sustainability Reporting Directive (CSRD), which comes into effect in January 2024.

Although only large enterprises are required to conduct a double materiality analysis, it is highly recommended for small and medium-sized enterprises (SMEs).

In other words, understanding what double materiality is and how it should be applied in your business has never been more important.

What is Double Materiality?

Double materiality is a principle where businesses must consider how their actions affect both people and the planet, as well as how sustainability issues can impact their finances.

In short, it’s about looking at the big picture from two different perspectives: the company’s impact on the environment and society, and the environment and society's impact on the company.

Implementing a Double Materiality Assessment

Implementing a double materiality assessment is the essential first step to start working with sustainability. The goal of the process is to determine:

- Who do I impact, and how?

- What risks, opportunities, and impacts are essential for my business to address?

Through double materiality analysis, companies affected by the directive can also identify which reporting requirements listed in the European Sustainability Reporting Standards (ESRS) are relevant to them.

The ESRS outlines extensive lists of sustainability topics that companies must report on. The specific topics relevant to your business and requiring reporting will be determined through the double materiality assessment.

Think of it this way: Double materiality assessment ensures that a company's sustainability reports focus on issues that are genuinely relevant to them, rather than cherry-picking what suits them.

Is Double Materiality Mandatory?

Yes, for companies affected by the CSRD, conducting a double materiality assessment is mandatory. This standardized process helps them determine which sustainability issues are material and should be included in their reporting.

However, it is highly recommended for SMEs.

Dimensions of Double Materiality

There are two dimensions of double materiality that businesses must consider:

1. Impact on the Environment, People, and Society - Inside-Out Perspective

This dimension considers how the company’s actions affect people and the planet in the short, medium, and long term. Remember, this includes not only the direct impact of your operations but also the impact across your entire value chain.

2. Financial Risks and Opportunities - Outside-In Perspective

This dimension focuses on how sustainability issues affect your business. This includes factors like your business’s growth, performance, and cost of capital in the short, medium, and long term.

By combining these two perspectives, you can identify which sustainability risks and opportunities are material to your specific business, what the company should work on, and therefore what should be included in your reporting.