What You Need to Know about Double Materiality and the Corporate Sustainability Reporting Directive (CSRD)

Sustainability has become a critical aspect of corporate operations worldwide. The need for transparency and accountability in environmental, social, and governance (ESG) practices has led to the development of frameworks and directives aimed at ensuring companies disclose their sustainability information. One such directive is the Corporate Sustainability Reporting Directive (CSRD), which makes it mandatory for large companies and all companies listed on regulated markets to disclose sustainability information.

Corporate Sustainability Reporting Directive (CSRD)

The CSRD, which comes into force for large firms already subject to the Non-Financial Reporting Directive (NFRD) from January 1, 2024, requires companies to include a non-financial statement in their management report containing information necessary to understand the company’s impacts on sustainability matters and how sustainability matters affect the company’s development, performance, and positions. This information must be clearly identifiable through a dedicated section of the management report.

One of the key concepts introduced by the CSRD is “Double Materiality.” This approach requires companies to take into account both the impact of their operations on the environment and society, as well as the impact of sustainability topics on the company’s ability to create financial value. In essence, it means that risks and opportunities are viewed as two-way impacts, allowing organisations to compare sustainability topics based on those that have an impact on the organisation and those that have an impact on the environment or society.

Double Materiality

The process of implementing Double Materiality is comprehensive and involves several steps and guidance. This includes the identification, design, and development of a strategy framework, metrics and targets, prioritisation, governance, transformation, and peer benchmarking. It also involves understanding the context and value chain, proposing topics, engaging stakeholders, finalising topics, identifying impacts, risks, and opportunities (IROs), and scoring the IROs. This step-by-step approach ensures a thorough understanding and effective implementation of Double Materiality.

Furthermore, the CSRD introduces a timeline for compliance. The directive will come into force for large firms that were not subject to the NFRD before January 1, 2025, and for small and medium-sized enterprises (SMEs) from January 1, 2026. This timeline provides companies with a clear roadmap for aligning their sustainability reporting practices with the directive’s requirements.

TDi Sustainability has released a CSRD and Double Materiality Guidebook, which emphasises the importance of integrating Environmental, Social, and Governance (ESG) metrics and disclosures into the reporting process. It recommends tracking these metrics with intelligent software to ensure security, scalability, collaboration, and efficiency. This integration is crucial for companies to demonstrate their commitment to sustainable practices and meet the increasing transparency demands from regulators, businesses, customers, and consumers.

The document also highlights the significance of conducting Double Materiality assessments, which consider both the company’s impact on the environment and society and the sustainability topic’s impact on the company’s ability to create financial value. This approach enables organisations to compare sustainability topics based on their impact on the organisation and the environment or society.

Moreover, the document outlines the proposed scope of work in the project context, detailing how TDi can help organisations with regulatory scanning, stakeholder mapping, supply chain mapping, value chain risk and impact assessment, human rights and environmental impact assessment severity framework, and the design of a human rights and environmental due diligence strategy. These services are designed to support companies across all stages of the development and operation of their value chain, from initial diagnosis to the actual operation of “business as usual” processes.

The Corporate Sustainability Reporting Directive and the concept of Double Materiality are pivotal in shaping the future of sustainability reporting for companies. By understanding and implementing these frameworks, organisations can not only meet regulatory requirements but also demonstrate their commitment to sustainable practices and responsible corporate citizenship. As the demand for transparency and accountability continues to grow, embracing these frameworks will be essential for companies looking to thrive in a rapidly evolving business environment.

Download the CSRD and Double Materiality Guidebook and contact us to discuss how TDi can support your company.

Download the free CSRD and Double Materiality Guidebook

The Corporate Sustainability Reporting Directive (CSRD) is an EU regulation aimed at enhancing and standardising sustainability reporting among companies. It is set to impact more than 50,000 companies across the EU, significantly expanding the scope from the previous Non-Financial Reporting Directive (NFRD), which affected around 11,700 companies. Starting from 2024, large companies will need to begin disclosing sustainability information for the 2023 financial year, with phased implementation for other companies in the following years. A key feature of the CSRD is the “double materiality” requirement, which mandates that companies must disclose information on both the financial materiality of sustainability issues (how these issues impact the company’s financial performance) and the environmental and social materiality (how the company’s activities affect the environment and society.) This dual perspective ensures a comprehensive assessment of sustainability, promoting greater transparency and accountability in corporate practices.

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