CSRD & double materiality - the importance of two-way evaluation

08:50 | 02/10/2024

The Corporate Sustainability Reporting Directive (CSRD) is a new directive from the European Union aimed at enhancing transparency and accountability in the sustainability reporting of businesses. Instead of merely requiring reports on financial activities, CSRD expands the focus to non-financial factors like environment, social, and governance (ESG).

One of the key elements in the CSRD directive is the concept of "Double Materiality", a relatively new term for many businesses.
"Double Materiality" is a new assessment criterion introduced by the EU in the CSRD directive to improve the reliability and standardization of corporate sustainability reports. This criterion offers a two-way perspective: not only it requires companies to acknowledge the impact of environmental and social factors on their operations, but also demands transparency about their own effects on the environment and society.
This concept requires businesses to report on the impacts of sustainability in two dimensions: Impact Materiality (the inside-out view) and Financial Materiality (the outside-in view).

Impact Materiality
This evaluates the influence of business activities on the environment, society, and stakeholders. From this, companies must clearly report negative impacts and devise strategies to mitigate them.

Financial Materiality
On the other hand, the impact of environmental and social factors on the company’s operations and its value chain must also be assessed. These material risks can be either positive or negative, providing a more comprehensive view of risks and opportunities when aligning business operations with ESG.

By considering these two dimensions, companies not only better understand how they affect the environment and society but also recognize the risks and opportunities arising from external environmental and social factors.

The Significance of Double Materiality:

Gives businesses and stakeholders a more comprehensive and transparent view of ESG-related issues.
Enhances the company's credibility and strengthens its ability to collaborate with partners in the market.
Ensures that reported issues are closely related to the company's operations, helping to optimize resources and reporting time.
Helps companies understand their environmental and social impacts and assess risks and opportunities in a holistic way, enabling them to make more informed business decisions.