Seeing Double Materiality

Given the complex demands of the CSRD on companies, our Sustainability Director, Louise Ayling, and Strategist, Karina Van Ginkel, reveal how to turn your double materiality assessment into a strategic advantage

Love them or loathe them, the Corporate Sustainability Reporting Directive (CSRD) heralds a new era.
If you can see past the quagmire of complex disclosure requirements (and perhaps squint a little), the intent at the heart of CSRD – ‘to transform business models for a more sustainable economy’ – is admirable.

At the centre of it all is a shift towards Double Materiality.
It’s driving a sharper focus on impact, rather than a subjective notion of importance. And it’s forcing companies to assess their impacts across two dimensions: the impact of the business on society and the environment; and the effect of environmental and societal issues on the business and its financial performance.

But these new expectations and the rising stakes of compliance are no walk in the park.
The depth and rigour required by ESRS is considerable, albeit non-prescriptive. At times, it feels as though ‘complying’ with ESRS is akin to asking, “how long is a piece of string?”.

This lack of instruction means that interpretation of the regulation varies wildly, causing widespread confusion and myriad different approaches, all compounded by inconsistent audit processes.

And then there’s the question, ‘Is an ESRS-aligned approach to Double Materiality even sufficient?’.
As intimidating and challenging as the regulations may seem, tick-box approaches towards ESRS-aligned double materiality assessments feel insufficient in the context of ‘real-world’ sustainability. Despite CSRD’s lofty ambitions, its requirements lose sight of the bigger picture, and the need for organisations to operate within the context of our planetary boundaries and societal norms and thresholds.

Over the past year we’ve conducted numerous CSRD-aligned Double Materiality assessments for global household names. And in that time, we’ve pored over the ESRS standards, revolutionised our materiality approach, navigated some tricky conundrums, and been well and truly interrogated by the auditors. It’s fair to say we’ve learnt a lot along the way, and in response, we’ve continually adjusted our methodology at every twist and turn.

Here, we distil some of these lessons and key insights, to help make sure your materiality assessment can transcend the complex regulatory obligations to unlock tangible value and drive meaningful change.

1. Impact, Importance and Efforts are often confused

The shift towards ‘impact’ required of the Double Materiality process is progressive, but commonly misunderstood. Two common challenges arise:

- We’ve found that many stakeholders conflate an organisation’s efforts with its overall impact, believing that if the organisation is taking considerable action to address a certain topic, then it must be having a positive impact overall. This is problematic because a company’s initiatives and actions don’t necessarily lead to a positive impact – they may simply reduce a negative one.

Take carbon emissions. To have a neutral impact, a company would need to be emitting no carbon into the atmosphere, and to achieve a positive impact it’d need to be carbon negative, i.e. sequestering more carbon than it emits.

- We also found that many stakeholders mistake topic impact for importance – a hangover from the previous era of materiality assessments. The notion of ‘importance’ is subjective and limiting, based on a biased perception of topic relevance, rather than an objective assessment of the organisation’s impact of an organisation on society and environment

Transitioning towards ‘impact’ is vital for a successful materiality assessment, but it requires a total mindset shift. Years of viewing incremental advancements as progress, and measuring performance using input and output metrics, aren’t easy to unwind.

In our work with GPE and Principal, we clarified the distinction between impact, importance and effort early on in the process, with reminders throughout, and clear guidance to stakeholders ahead of our interviews and engagement.

Our suggestion: Be clear about the distinction between impact, effort, and importance early on, with reminders throughout. Constructively challenge stakeholders’ input, if you think they’re confusing the terms.

2. Double materiality fails to establish context

Companies tend to set goals based on their capabilities or aspirations, rather than grounding them in a realistic and evidence-backed consideration of the external context they operate in. This often renders performance data meaningless, as it doesn’t actually quantify the impact of a company on the world around it.

While Double Materiality, prescribed by CSRD, focuses on impact and includes an ‘outward’ perspective, it still falls short of assessing impact in context.

For a far more relevant and meaningful outcome, the holy grail is to conduct a ‘triple’, or ‘context-based’ materiality assessment.

Our suggestion: Use Future-Fit and the UN Sustainable Development Performance Indicators (SDPIs) to assess business impacts in the context of environmental thresholds and social norms.

In our work with Investec and Principal we used the SDPIs as a guide when assessing the impact of key topics.

3. Siloes need to be broken

Materiality is no longer the domain of the sustainability team. The demands of CSRD requires in-depth input from stakeholders across the business to identify, assess and manage sustainability-related impacts, risks and opportunities. This is especially true for assessing financial impact, where a strong grasp on how sustainability-related risks and opportunities impact the financial position of the company is key.

This level of understanding across finance, risk and legal teams, in particular, is really varied. We’ve found that risk, finance and senior leadership teams in businesses like PUMA, who’ve been blazing a trail with their environmental profit and loss account (EP&L) methodology for years, are already really clued up on sustainability-related topics. For others, though, it’s new territory.

Our suggestion: Bring finance, risk and legal teams into the process early on, and get everybody on the same page through clear onboarding sessions, briefings and guidance.

4. The assurance process isn’t clear-cut

Assurance of materiality assessments is new territory for many organisations, and the assurance guidance associated with CSRD is not due to be published until 2026. This leaves a two-year gap, during which early adopters must publish – and assure – their CSRD-aligned materiality assessments and reports, without the necessary guidelines to follow.

As a result, assurance providers interpreting the requirements in the own way, and they appear to be taking very different approaches.

In our experience, they have a tendency to focus on the granular detail of the Standards, which carries a risk of losing sight of the bigger picture and the spirit of what CSRD aims to achieve.

Our suggestion: Engage your selected assurance provider from the outset, to understand their expectations and the basis for their assurance, with key touch-points throughout. And make sure you document every single step and decision made throughout the process: as the saying goes, ‘if it’s not documented, it didn’t happen’.

5. A full understanding of the business is required

It sounds obvious, doesn’t it? But the level of understanding required to undertake a robust materiality Double Materiality assessment, shouldn’t be underestimated.

What’s the organisational structure? Are there different legal entities or sub-brands, and how do these factor into the scope of the assessment? Do you have a full understanding of the value chain, and the key relationships and resources the business relies upon at each stage? How much influence and control does the business have?

The extent of an ESRS-aligned double materiality assessment could be endless.

In our double materiality assessments with the likes of GPE, and Principal, we interviewed senior leaders across the business to immerse in the organisation and its value chain, ahead of commencing our assessment.

Our suggestion: Make sure you have a full understanding of your business and clarify the scope of the assessment from the outset. Check the assuror is happy with this scope before you get started.

6. Stakeholder engagement is about more than participation

ESRS eludes to the need to engage with both ‘affected stakeholders’ and ‘users of information’ as part of the materiality assessment, but it is not specific about when or how to engage.

Assessing impacts, risks and opportunities is complicated. Sending a high-level survey to hundreds or even thousands of stakeholders won’t cut it. Equally, asking a general employee to score the organisation’s current and future sustainability-related topic impacts through the lens of scale, scope, remendiability and likelihood, is bound to raise a few eyebrows – and to end up with questionable results.

To achieve meaningful stakeholder inputs, that will inform a robust materiality outcome, it’s important to select the right stakeholders to involve, and to engage them in the right way.

We’re big fans of in-depth interviews, to gather really insightful and qualitative perspectives that’ll inform our detailed impact assessment. Ultimately, they provide more nuance and granularity than survey data ever could.

Our suggestion: go for quality over quantity and take the time to brief your stakeholders in an engaging and understandable way, to achieve the best results.

7. CSRD can feel overwhelming – but it needn’t

CSRD isn’t designed to be easy, it’s (ultimately) designed to affect change. The start of the journey is bound to feel difficult as the business upskills and adjusts to new processes, new relationships and new mindsets. The Double Materiality assessment is no exception – especially due to the heightened expectations of the assurance process.

We’re huge advocates of translating the complexity of Double Materiality into digestible concepts and clear steps, and bringing people in through engaging and accessible briefings, creative analogies (check out our guide to materiality, through the lens of football), and compelling discussion. After all, materiality assessments surface some fascinating discussions in the most unexpected places. We want people to lean in and be part of it, rather than running scared for the hills.

In the face of fierce criticism about the complexity of ESRS, the European Commission has recently urged organisations to “use common sense” in their implementation of the standards.

“Our single most important message at the moment is: let's make sure that we implement these standards in a proportionate and in a pragmatic way. Let's not fall into the trap of trying to over-implement.”
European Commission, October 2024

Our suggestion: Unshackle the process from the tick-box nature of ESRS and its technical language. Instead, get creative, and make it relatable end engaging.

A final word
There’s no doubt, ESRS is complex, exhaustive, and time-consuming. Add to that an exhaustive assurance process and the considerable repercussions for non-compliance, and the stakes are high.

It’s little wonder that many organisations are focused on simply ticking the boxes to satisfy the requirements.

But when the boxes themselves lack clarity, ticking them is no small undertaking, and the outcome doesn’t necessarily lead to sustainable change, it can feel frustrating, at best.

We urge business to retain sight of the bigger picture and the spirit of what a double materiality assessment is trying to achieve. The dual-perspective of outward and financial impact is illuminating, the focus on impact is progressive, and the potential to drive meaningful, strategic change, is there for the taking.