How companies can comply with the new CSRD directive: understanding dual materiality

The context of materiality and its evolution with CSRD: the difference between single and double materiality

What is materiality?

Within Corporate Social Responsibility (CSR), materiality represents an essential pillar, designed to identify and classify issues likely to have a substantial impact on a company’s overall performance. In more explicit terms, it involves identifying the issues and concerns deemed crucial by stakeholders, and likely to influence the company’s decision-making and actions.

What’s the difference between simple and double materiality?

Traditionally, single materiality in the context of CSR focuses on financial dimensions and concrete risks. When drawing up a CSR strategy, simple materiality makes it possible to classify issues according to their relevance for the company and their importance for its stakeholders. This means highlighting ESG (Environment, Social, Governance) issues that have a direct impact on financial performance or represent palpable risks for the company.

The introduction of CSRD represents a substantial evolution in this approach, with the introduction of double materiality. The latter, in greater depth, distinguishes between two essential dimensions:

• Financial materiality: This dimension goes beyond the simple identification of financial risks. It involves a careful assessment of the impacts, both positive and negative, of sustainability issues on the company’s financial performance. In other words, it seeks to understand how CSR commitments can influence the company’s overall financial health, thus integrating a crucial economic perspective.
• Impact materiality: This dimension extends beyond the boundaries of the company, assessing the repercussions, both positive and negative, of the company on its economic, social and natural environment. To identify these impacts, various resources are made available, such as the ESRS 1 standard, sector-specific standards, and the monitoring of subjects already tracked by the company. This approach offers a more holistic view of the company’s contribution to sustainability and social responsibility.

The challenges of double materiality: a necessary analysis for CSRD compliance

Ensuring transparency for stakeholders

With the advent of the CSRD, companies are now obliged to conduct an in-depth analysis of double materiality. This approach has become an essential guide for defining the subject’s deemed material, i.e. those considered crucial to the company. Regarding these material issues, companies are required to publish all relevant information, thus ensuring total transparency for their stakeholders. For non-material issues, on the other hand, it becomes imperative to publish the underlying rationale for this consideration, providing a clear understanding of the choices made.

Identifying the standards applicable to the specific case of each company

From a practical perspective, double materiality emerges as the indispensable starting point for determining the information to be made public, thus reinforcing the responsibility of companies in the transparent management of their impacts. Double materiality analysis enables companies to identify precisely which European reporting standards (ERS) are most relevant to them. This is done by considering the company’s sectoral specificities and assessing its impact on the surrounding environment. What’s more, this approach also offers the possibility of elaborately justifying why some of these standards are not applicable, thus creating a customized compliance approach in line with the particularities of each company.

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What opportunities does dual materiality offer companies?

Although this complex evolution represents a major challenge for companies, it also offers a significant opportunity to improve transparency and understanding of extra-financial performance. By positioning companies as key players in the promotion of sustainability and social responsibility, it aligns them with the global objectives of sustainable development. This reflects a shared desire to create a positive impact while meeting growing expectations for accountability and commitment to sustainability.

Moreover, companies, encouraged to rethink their business model, can contribute to strategic innovation, improve operational efficiency and attract ethically minded investors and consumers. The integration of dual materiality also stimulates technological innovation, encouraging companies to explore new technologies and invest in sustainable R&D initiatives.

In addition, this analysis encourages companies to examine their supply chain, adopt responsible practices and collaborate with sustainable suppliers. This can improve resilience, reduce long-term costs and enhance corporate reputation.

CSRD compliance represents a challenge of considerable scale for companies and brings significant changes to the way companies communicate their extra-financial performance. Alcimed can help you draw up your double materiality matrices, from identifying key materiality issues to consulting stakeholders and benchmarking against the practices of players in your sector. Don’t hesitate to contact us!

About the author,

Charles, Consultant in Alcimed’s Energy Environment Mobility team in France