Navigating the CSRD: Applying the double materiality principles
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26 October 2023 - Corporations worldwide are undergoing a profound transformation. It’s no longer just about profits and loss statements; but now also addressing the positive and negative impacts on the environment and society. This shift isn't solely a response to shareholder and customer pressures; it's also a reaction to increasingly stringent disclosure requirements. The European Union's (EU) Corporate Sustainability Reporting Directive (CSRD) is at the forefront of this movement, and in BSI’s five-part online seminar and subsequent blog series, our sustainability experts will delve into what this means for organizations everywhere, not just those that are based within the EU.
CSRD: A game-changer in sustainability reporting
The EU’s CSRD is not just another piece of legislation; it is to date the most expansive and likely to drive rapid adoption and greater scrutiny across organizational sustainability practices and reporting. It demands a comprehensive approach to sustainability reporting that touches every aspect of a business. The directive requires reporting in accordance with the European Sustainability Reporting Standards (ESRS), which provides a framework and methodology for reporting on sustainability issues. The standards focus on three sustainability categories: Environment, Social, and Governance (ESG). In order to determine which sustainability issues to include in sustainability statements, the topics must be assessed from a double materiality perspective.
Double materiality assessment
To navigate the CSRD and ESRS successfully, the double materiality principle must be applied. Double materiality means evaluating not only the sustainability matters that may trigger financial effects – both positive or negative – on the business (financial materiality), but also the positive or negative impacts caused or contributed by the company’s direct operations, products, or services, or through value chain activities and business relationships on the environment or people (impact materiality). A comprehensive double materiality assessment is the foundation upon which the CSRD compliance is built and involves:
- Identifying and prioritizing sustainability issues that create financial risks or opportunities for your business.
- Assessing and addressing actual or potential sustainability-related impacts on society or the planet connected to your business - positive or negative.
- Understanding the expectations and relevance of issues to stakeholders, including investors, consumers, regulators, and the wider society.
The CSRD introduces a new era of sustainability disclosure, and understanding best practices is essential. There are several fundamental principles to follow when laying out your disclosures:
- Clarity and transparency: Clearly communicate your sustainability strategy, objectives, and the steps you're taking to achieve them. Use simple, accessible language to ensure everyone, from shareholders to the public, can understand your reports.
- Data accuracy: Ensure the accuracy of data and use standardized metrics when possible. Accurate data builds trust, and standardized metrics enable comparability between different companies and sectors.
- Stakeholder engagement: Engage with stakeholders to understand their concerns and expectations. Show that you're taking their input seriously and using it to shape your sustainability strategy.
- Integration: Integrate sustainability into your corporate strategy; it should be woven into the fabric of your business, not just an add-on.
- Materiality assessment: Continuously reassess materiality. Sustainability issues evolve, and your assessment should adapt accordingly.
The CSRD is not just another regulatory hurdle; it's a milestone in the trek toward more responsible and sustainable business practices.
The first episode of BSI’s EU CSRD webinar series: Introduction to CSRD and double materiality provided a complete CSRD overview and a comprehensive breakdown of double materiality assessments. If you missed it, you can access the recording here.
And be sure to tune in to our second episode European Sustainability Reporting Standards (ESRS) E1 Climate Change as consultants Gouri Ganbavale and Desmond Zheng provide an overview of the environment-specific reporting standard that outlines the disclosure requirements companies must provide regarding their impact on climate change.
Read more from other BSI sustainability experts in ESG compliance: Navigating sustainability-related regulations, California’s latest climate disclosure bills (SB 253 and SB261), TCFD: Beyond regulatory compliance, and LCA and its role in sustainability. Follow along with more sustainability-focused content and other digital trust, EHS, and supply chain topics that should be at the top of your list at BSI’s Experts Corner.