As we approach the first reporting period for the Corporate Sustainability Reporting Directive (CSRD), companies around the world are beginning their work on ensuring compliance with the standard. The CSRD replaced its predecessor, the Non-Financial Reporting Directive (NFRD), due to a new surge of bringing in both financial and non-financial information together. With this new standard comes new reporting requirements that companies will now need to adopt. One of the most innovative and important changes with the CSRD is the introduction of double materiality.
This blog highlights the key challenges organizations may face during its implementation and discusses how the right ESG software can support companies in achieving compliance with CSRD reporting requirements.
What is double materiality?
Double materiality is a mandatory process that requires all companies to identify material sustainability matters to the organization and its stakeholders. This process involves two key approaches:
- Inside-out perspective. Understanding how an organization impacts the environment and society at large.
- Outside-in perspective. Understanding how the external environmental and societal factors impact the organization
An organization will need to conduct a double materiality assessment to understand which sustainability matters are material or not. These items will then need to be included in its CSRD report to ensure compliance. Double materiality as a concept supports organizations in identifying the key topics they need to focus on and helps to limit the scope of reporting. Through the assessment, companies can understand areas of risk and opportunity, and implement the results within their broader business strategy.
Want to dive deeper into the concept of materiality? Whether you’re new to ESG reporting or ready to take on double materiality assessments, we’ve got resources to guide you. Learn the key aspects of materiality in ESG reporting. Or discover our expert tips for conducting a successful double materiality assessment to enhance your sustainability strategy.
Key Challenges for Double Materiality Assessments
Double materiality is a new concept introduced by the CSRD, which means organizations have not conducted this assessment. Therefore are a few challenges that may come up during the process.
1. Lack of Resources and Expertise Available
Conducting a double materiality assessment takes expertise, time, and key resources across the business, making it difficult to do this off the side of the desk. Ensuring due diligence and accuracy in the assessments, involves engaging the right stakeholders from sustainability, risk, finance, and administrative teams. However, this can be time consuming to organize.
Without having trusted expertise, it will also be challenging to conduct an analysis correctly, especially if it is the first time. The ‘material’ term can be a tricky concept to define and implement, which can cause further confusion internally. Additionally, teams may experience internal biases with identifying key issues that impact the organization at large, making it difficult to find gaps and identify risks.
2. Maintaining Proper Documentation and Auditability
Without the correct templates or documentation in place, conducting a double materiality assessment can become overwhelming and confusing. Inadequate documentation can result in disjointed outputs and inconsistent communication, further complicating the CSRD reporting process. In addition, as companies continue to report on CSRD year after year, lacking historical documentation can delay reporting timelines and increase administrative workloads.
When reporting to regulations, it is also key to maintain an audit trail to streamline third-party reviews. Organizations can sometimes struggle to track results and decisions, especially if the work is being done manually through multiple channels like spreadsheets and email.
3. Integrating into Broader Business Strategy and Continuously Monitoring
After the assessment is done, it is key that the outputs are integrated into broader company strategy and business planning. This can be challenging, especially if team members do not have the expertise to identify key objectives, KPIs, and actionable items that will support in improving sustainability performance.
It is important that organizations continue to review the identified material issues as well. Because of how rapidly topics and impacts evolve, companies must continue to regularly review their strategies and ensure they align with the ever-changing ESG landscape. Again, this can prove to be a challenge, especially if there is a gap in resources and knowledge.
How Cority Can Help with CSRD Compliance
Partnering with an external advisory team can be instrumental in ensuring your organization conducts double materiality assessments with accuracy and ease. At Cority, our in-house ESG experts provide customized services for organizations preparing for CSRD reporting. We also provide support across the entire compliance process and work in lockstep with companies, starting with training and onboarding to upskill teams and leadership on the implications of CSRD and roles & responsibilities.
Our team provides the methodology and tools needed for the double materiality analysis, and conducts it within your organization to identify material sustainability issues. Our experts will survey key stakeholders through interviews and questionnaires, and validate the findings with relevant internal departments.
With a diverse team of over 70 consultants and ESG experts, Cority has provided tailored guidance and support for regulatory compliance for over a decade.
Our dedicated CSRD advisory services can also support with ensuring your organization feels confident in responding to the upcoming regulation.
Ready to get started? Contact our experts today and ensure your business is ready for the future of sustainability reporting.
