Double materiality at a glance

• Defined evaluation logic (criteria, scales, threshold values)
• Comprehensible decision-making process (audit trail)

• per topic: assigned impacts and risks/opportunities
• Classification by time horizon (short/medium/long)
• Coverage of own activities and value chain

• Derivation of which thematic ESRS standards are essential
• Basis for the specific selection of relevant information/data points

• Which data is available, which is missing?
• Which processes/IT systems need to be adapted?
• What internal controls are needed for verifiable information?

Before starting the materiality analysis, the company should first define the framework. This includes an overview of the most important activities, products and locations and also what the value chain looks like, i.e. from the suppliers to the use and disposal of the products. It is also worth considering external factors, such as new regulations, market requirements, industry-specific risks or information from the media, NGOs and benchmarks.

It is at least as important to define the organizational guidelines in this step: Which specialist departments are involved, which roles bear responsibility and who validates the results? It also makes sense to define the time horizons under consideration (short, medium and long term) at this stage, as many sustainability issues have a delayed effect. The approach to stakeholder involvement is also defined in this step, including the question of how the perspective of nature is taken into account, for example via scientific data, site analyses or external studies as a "proxy".

A longlist of potentially relevant topics is compiled on the basis of the scope. The ESRS provide a good structure for this, as they divide the sustainability topics into thematic areas and sub-topics. In practice, however, it is rarely sufficient to simply adopt the ESRS system. Companies should add sector- and company-specific topics to the longlist, especially as long as sector-specific standards are not available or transition periods apply.

Internal analyses alone are often not sufficient for a complete overview of topics. Findings from risk and compliance processes, reports from complaint or whistleblower systems, results from audits and supplier evaluations as well as customer requirements, for example from tenders, are also helpful. External risk indicators can also help, for example on countries, raw materials or locations. This step is not yet about prioritization, but about ensuring that no important issue is overlooked.

Based on the longlist, experts for each topic look at the specific impacts, risks and opportunities for the company (IROs). It is important to note that this does not just happen within the company itself. Many IROs arise along the entire value chain. Particularly in the case of human rights or environmental issues, the greatest impact is often on suppliers (upstream). However, risks and opportunities can also arise later, for example when the product is used, due to customer requirements or during disposal and recycling (downstream).

To avoid misunderstandings later on, the IROs should be clearly categorized during the survey: Impacts as positive or negative and as already occurred or only possible, and risks/opportunities as factors that affect the company from the outside (outside-in). It also helps to record a few basics for each IRO: Where does it occur (own operations, supply chain, use/disposal), who or what is affected, what time period is relevant and what is the assessment based on. Topics for which no comprehensible IROs can be found can then be deleted, because without an IRO, a topic cannot be meaningfully justified in the context of double materiality.

The evaluation shows whether the process is really intended to be "double". This is because impact and financial materiality follow different logics and should therefore be evaluated separately - even if the results can influence each other later on.

In the case of impact materiality, the severity of a negative impact is assessed, for example according to how large it is (extent), how many or which areas are affected (scope) and whether it can be reversed (irreversibility). If a negative impact is only possible, there is also the question of how likely it is. Positive impacts are also considered, especially in terms of how relevant the contribution is. It is important that criteria and scales are clearly defined in advance so that different specialist areas arrive at comparable results.

For financial materiality, an assessment is made as to whether a sustainability issue can influence the financial situation or the business model as a risk or opportunity. The focus here is usually on probability and financial extent, supplemented by time horizons and, if applicable, sensitivities (e.g. dependence on certain raw materials, locations or customer segments). In practice, a comparison with existing risk management is worthwhile, but without reducing the analysis to this: Many sustainability issues are not yet or only incompletely mapped in traditional risk catalogs.

Based on the defined criteria, thresholds are set above which IROs are considered material. Elements that are close to the materiality threshold should be specifically checked for plausibility and, depending on their level of maturity, corroborated with additional data, external sources or expert feedback.

After the assessment, the IROs classified as material are assigned to the respective topics (and sub-topics) and aggregated in a meaningful way. The question of granularity is key here: companies must decide whether they want to report at topic level or differentiate more at sub-topic or IRO level. The ESRS deliberately provide leeway here, but demand traceability.

In practice, it is worth working internally with an IRO register. This clearly documents the main impacts, risks and opportunities, including the assessment logic. A traditional materiality matrix can also be helpful, but often leaves out important details because it only roughly shows the IRO level and the difference between impact and financial materiality. No matter which format you use: In the end, the results should be confirmed by management - as a genuine governance decision, so that the process can also be audited and verified later on.

The real added value arises when the result is consistently transferred to implementation. The next step is to map the key topics and IROs to the relevant ESRS requirements: Which thematic standards are essential, which disclosures and data points are required, and what information needs to be obtained along the value chain?

This is usually followed by a gap analysis. It shows specifically where the company stands: What data is already there, what is still missing, which processes are unclear, where IT support is needed and which controls are required to ensure that the information is standardized and verifiable later on. These results are then used to create a roadmap with responsibilities, a timetable and clear priorities, coordinated with the relevant specialist departments. In this way, the materiality analysis does not stop at reporting, but becomes a tool that sensibly combines sustainability with strategy, governance and risk management.

Double materiality means that companies evaluate sustainability from two perspectives: How ESG issues affect their financial position and what impact their actions have on the environment and society. Due to requirements such as NFRD and CSRD, the concept is becoming increasingly important and helps companies to better integrate responsibility and strategy.

The difference is quickly explained: simple materiality only asks what is financially relevant for the company or investors, i.e. how ESG issues influence profits, risks or company value. Double materiality goes one step further and also looks at what impact the company itself has on the environment and society.

A materiality analysis based on double materiality usually proceeds as follows: First, the objective and scope are defined, then the most important stakeholders are involved. The company then collects possible topics, evaluates them from an impact and financial perspective and prioritizes the key points. The results are documented, incorporated into reporting and regularly updated so that they match the reality of the company.

As a rule, a materiality analysis should be updated every 1 to 3 years and whenever something fundamental changes, for example due to a merger, new products, a new strategy or major external events. It also makes sense to collect feedback from stakeholders on an ongoing basis and incorporate it where necessary. It is best to link the analysis to the annual planning process so that new risks and opportunities can be incorporated directly into decisions.

To ensure that all relevant stakeholders are taken into account, companies should first clarify who they include, for example employees, customers, investors, suppliers or NGOs. Various formats such as surveys, interviews or workshops then help to gather different perspectives. It is important to explain the process transparently, take feedback seriously and, at the end, show what happens as a result - i.e. how the results are incorporated into decisions. You should also consciously include groups that are otherwise easily overlooked.

ESG criteria are important for dual materiality because they cover both sides: they show which sustainability issues can affect the company financially and where the company itself has an impact on the environment and people. At the same time, they help to meet the expectations of investors and other stakeholders, comply with regulatory requirements and identify opportunities for competition and innovation.

Impact materiality looks at what effects a company's actions have on the environment and people, both positive and negative. In contrast to financial materiality, it is not about what affects the figures from the outside, but about what the company itself causes externally and how stakeholders are affected. As expectations and requirements increase, this view is becoming ever more important, also because companies are increasingly required to make their social and ecological effects transparent.

Financial materiality asks which ESG issues are financially relevant for a company, i.e. whether they can influence sales, costs or the company's value. This information is particularly important for investors and must be disclosed depending on the requirements. As part of dual materiality, financial materiality ensures that sustainability issues are not just "nice to have", but are also considered from a risk perspective and for the long-term stability of the company.

Implementing dual materiality is challenging for many companies. There is often a lack of reliable ESG data, stakeholder expectations are not always clear and existing processes need to be adapted, which can also trigger internal resistance. In addition, there are regulatory uncertainties, a lack of expertise and the challenge of measuring non-financial impacts in a meaningful way. And last but not least: The long-term view does not always fit with short-term goals, which makes implementation even more difficult.

Double materiality brings companies clear advantages: they recognize risks and opportunities earlier, financially and in terms of their impact, and can manage them in a more targeted manner. This makes decisions more resilient and helps to build a sustainable strategy that is viable in the long term. At the same time, transparency towards investors, customers and other stakeholders increases, which creates trust and makes it easier to meet regulatory requirements. The bottom line is that this supports stable, sustainable value creation and can trigger innovation.

There are several standards and guidelines that companies can use as orientation for the implementation of dual materiality. SASB is particularly helpful with industry-specific topics, while GRI offers a broad framework for reporting on environmental and social impacts. In the EU, CSRD and ESRS are central because they define the requirements for disclosure. In addition, TCFD (focus on climate-related financial risks) and integrated reporting in accordance with IIRC help to bring together financial and non-financial information.

Dual materiality has a direct impact on corporate strategy. It helps to take a holistic view of risks and opportunities, not only financially, but also in terms of their impact on the environment and people. As a result, companies align their decisions more closely with stakeholder expectations, meet regulatory requirements more easily and strengthen their reputation. At the same time, this can trigger new ideas and innovations and thus support long-term competitive advantages and stable value creation.

Similar mistakes are made time and again in materiality analyses: stakeholders are only half-heartedly involved, the analysis is updated too rarely or the focus is almost exclusively on financial risks, while impact issues are overlooked. There is often a lack of clear objectives, the methodology is unnecessarily complicated and the results are rarely communicated internally. Those who take a structured approach, update regularly and document transparently avoid most of these stumbling blocks.