News
January 2, 2024
During our discussions with potential clients we are repeatedly asked about the new requirements resulting from the Corporate Sustainability Reporting Directive (CSRD). For example, we are increasingly being asked about the double materiality analysis - as the core element in determining the ESG issues that are important for a company.
When conducting a double materiality analysis, the materiality of various sustainability topics must always be assessed from two perspectives.
From the inside to the outside (“inside-out“). This involves looking at both the positive and negative effects of corporate actions on people, the environment and society. This is why the term “impact materiality“ is often used here.
In addition, from the outside in (“outside-in”). This involves looking at the opportunities and risks that sustainability issues pose for the business model, business performance or cash flow. It is no coincidence that this is also referred to as “financial materiality” or business relevance.
If a sustainability issue proves to be material from only one of the two perspectives, there is a need for action. The company is then obliged to report on it in accordance with the CSRD and provide the relevant information defined in the European Sustainability Reporting Standards, for example with regard to targets, measures and key performance indicators.
Too abstract? Let's take an example that makes double materiality a little clearer: climate change! The associated regulatory requirements, such as CO2 reduction targets, could have an impact on the economic success of the company from an “outside-in perspective”. Conversely, from the “inside-out perspective”, it is conceivable that the company's production, for example, could have a negative impact on the environment. Double materiality therefore always means vice versa! And thus creates an extensive radius of observation, which underlines the complexity of sustainable transformation, especially in reporting.
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