With evolving EU regulations, and specifically the Corporate Sustainability Reporting Directive (CSRD), the double materiality assessment has become a priority assessment for most companies operating in Europe and beyond. 

Organizations are confronted with a wide range of ever-changing sustainability issues (e.g., decarbonization, diversity in the workforce, business ethics). A double materiality assessment is the process for prioritizing sustainability topics. Material topics are those that have an impact on the company (financial materiality) and/or through which the company has an impact on society and/or the environment (impact materiality).

This assessment is an essential foundation for designing an effective sustainability strategy and is the first step towards CSRD compliance. However, the double materiality assessment is increasingly used as a strategic business and risk assessment tool, with implications going beyond traditional corporate responsibility and reporting. Leading companies employ it to embed sustainability within existing business practices and the overall business strategy.

Which companies fall under CSRD?

All NFRD companies and non-EU parent companies with a combined group turnover in Europe of more than EUR 150 million will be subject to CSRD. In addition, other large companies meeting two out of the three criteria below will be required to comply with the regulation.

  • More than EUR 40 million net revenue
  • Total assets are more than EUR 20 million
  • Employee base of more than 250 employees

What is CSRD-aligned double materiality?

Companies are required to conduct the double materiality assessment following strict guidelines and pre-defined criteria. This methodological ‘standardization’ aims to enhance comparability across organizations and sectors. It is also important to point out that it will be subject to third-party assurance. 

Strictly-speaking, the CSRD-aligned double materiality assessment looks to deepen the understanding of how an organization impacts - and is impacted by - a range of sustainability topics. For each topic assessed, impacts on the environment and society, as well as business risks and opportunities should be identified and assessed. This necessitates, among others:

  • Defining clear operational boundaries and the value chain for inclusion in the assessment.
  • Developing an appropriate stakeholder engagement strategy to support the materiality assessment.
  • Fully aligning the list of sustainability topics that are assessed with the topics and sub-topics provided by CSRD and ESRSs.
  • Identifying and consistently assessing impacts, risks and opportunities for each topic, including transparency on the underpinning rationale.
  • Determining materiality based on a set of pre-defined criteria; that is, for impact materiality: scale, scope, remediability, likelihood; for financial materiality: magnitude of financial impact, likelihood.
  • Fully documenting the outcome and process in the form of a double materiality report, including supplementary documentation aligned with third-party assurance requirements.

How we can help

KPMG professionals can provide the following services to help you prepare and execute on your organization’s double materiality assessment:

Trends analysis and sector benchmarking analysis

Peer analysis can be used to establish a first understanding of the relevant sustainability topics and the sector’s overarching market consensus on topics. Similarly, assessment of the wider trends and how they impact your organization and the sector can provide an outlook on the dynamic nature and interplay of sustainability topics.

Define operational boundaries and value chain mapping

Align brands, subsidiaries/affiliates, joint ventures, and any other entity that would be in-scope of CSRD and double materiality assessment. Based on the identified operational boundaries, map the organization’s value chain. This scoping serves as a basis to start the double materiality assessment and is crucial for a coherent and structured process.

Identify and assess Impacts, Risks, and Opportunities (IROs) per topic

Conduct stakeholder consultation and engage in desk research to identify relevant positive and negative impacts, and financial risks and opportunities in connection with each topic (e.g., Diversity, Equity, and Inclusion). These IRO’s will then be assessed against the threshold criteria which serves as the basis for materiality and ensuing reporting obligations.

Stakeholder engagement

Provide assistance and guidance in mapping and prioritizing stakeholders (across your organization’s value chain), defining best stakeholder consultation methods, as well as capturing and processing the results of the stakeholder consultation and integrating it into the double materiality assessment. The double materiality assessment may also feed into the update of your organization’s stakeholder management policy.

Disclosure requirement and mandatory/company-specific mapping

Based on the outcomes of the double materiality assessment, we can assist with the ESRS’ Disclosure Requirements (DRs) that the organization will need to report upon. Map the CSRD mandatory KPIs with the material topics and IROs, and identify where additional company-specific metrics should be included for external and/or internal reporting and controls.

Roadmap towards CSRD compliance

Development of your organization’s CSRD-activation strategy. We can support you in the definition of actions; the identification of resource needs; the identification and assignment of roles & responsibilities (governance); the optimal scheduling of timelines; etc. in support of CSRD-compliance. This may also involve the set-up of a cross-functional PMO-office to manage the various strands of implementation, as well as identifying optimal ESG data & technology solutions.

ESG and sustainability strategy refresh

Based on the outcome of the double materiality assessment, set appropriate targets (short-, mid- and long-term) and develop action plans for material topics. From this, build a coherent, multi-year sustainability / ESG strategy that supports the realization of the business strategy.