A “Double Materiality” chart

Here’s a note from Antonio Vizcaya Abdo:

Conducting a Double Materiality Assessment (DMA) is a critical process for organizations looking to align with the European Sustainability Reporting Standards (ESRS). This process helps in identifying and addressing both financial and impact-related matters that are material to stakeholders and the business. The following is a streamlined four-step approach to effectively conduct a DMA.

The first step involves comprehensive ESRS reporting. It is essential to start by identifying a complete list of matters, including those specific to the entity as well as those derived from any existing materiality assessments. This ensures that all relevant issues are considered from the outset, setting a solid foundation for the double materiality assessment.

Next, the assessment is divided into two distinct parts: financial materiality and impact materiality. Financial materiality focuses on evaluating the actual and potential risks and opportunities related to sustainability matters across the value chain. The goal is to understand how these factors may affect the financial performance of the organization. On the other hand, impact materiality looks at the broader societal and environmental impacts, identifying both positive and negative consequences of the organization’s activities.

The third step is a detailed assessment and scoring process. For financial materiality, it is necessary to assess the magnitude of potential financial impacts and the likelihood of these risks or opportunities occurring. Similarly, for impact materiality, the severity of the identified impacts must be evaluated alongside their likelihood, considering different time horizons, including short, medium, and long-term effects.

Once these assessments are complete, the final step is reporting. The results are compiled into a comprehensive report that aligns with the ESRS indicators. This report should cover both the identification process and the outcomes, providing a clear picture of how these material issues interact with the organization’s strategy and business model.

This four-step process is not just about compliance; it is about driving better business outcomes. By thoroughly understanding and addressing both financial and impact materiality, organizations can enhance their resilience, improve stakeholder trust, and ultimately create long-term value. This approach ensures that businesses are not only meeting regulatory requirements but also contributing to broader societal goals.

Source: SAP / The ESRS Approach to Double Materiality Assessment