How to Conduct the Double Materiality Assessment in 6 Steps

The integration of sustainability into corporate governance has become essential in contemporary business, as demonstrated by the Corporate Sustainability Reporting Directive (CSRD). Central to this directive is the Double Materiality Assessment (DMA), a critical first step that shapes the entire reporting process. This article delves into the DMA's significance, presenting a comprehensive guide for companies to easily navigate through the process and have a successful DMA exercise.

How to Conduct the Double Materiality Assessment in 6 Steps

What is the Double Materiality Assessment (DMA)?

The Double Materiality Assessment stands as the foundation of the CSRD's framework, determining information that organisations are mandated to disclose. This process not only highlights the sustainability impact on a company's financial performance but also assesses how the organisation influences environmental and social factors. 

Performing a DMA, followed by a meticulous Gap Assessment, enables organisations to pinpoint the availability and quality of their sustainability data. This foundational work enables to identify responsibilities for data collection and setting the stage for transparent communication among stakeholders.

Embarking on the DMA: a Comprehensive Six-Step Guide

Starting your DMA can be a daunting task for many companies, which is why at Greenomy we have elaborated a comprehensive six-step guide to facilitate a thorough understanding and execution of the DMA process. The DMA is the starting point for all companies that are embarking on their CSRD reporting journey and it is an essential stage to ensure that processes are clear and well-defined, for successful reporting and auditing purposes. 

DMA steps overview, Double Materiality Assessment steps overview

1. ESG Assessment: Laying the Groundwork

The CSRD compliance journey starts with an ESG Assessment, where companies prepare for the DMA by mapping out their operational landscape. The ESG Assessment involves a detailed analysis of the company's activities, business relationships, geographic presence, and an examination of its strategic, financial, and ESG policies. 

Establishing the scope of the DMA at this point is imperative. The assessment calls for a collaborative approach to understand the nuances of the company's structure and its environmental, social, and governance footprint. A crucial outcome of this stage is a comprehensive stakeholder map, essential for fostering awareness and setting clear expectations across the board.

DMA ESG assessment, DMA phase 1

Defining your ESG universe is a crucial step in the DMA process, where companies identify all potential material sustainability matters based on all the collected information. This phase demands an in-depth analysis using the European Sustainability Reporting Standards (ESRS) as a guide, alongside an exploration of industry and peer benchmarks.

The goal is to craft a tailored ESG universe that reflects the unique aspects of your company, ensuring that it captures all relevant sustainability matters, including those not explicitly mentioned in standard ESRS frameworks.

Quick recap on the Impact, Risks, and Opportunities (IRO)

1. IMPACT: the impact is the real impact that you as a company can have on the environment and society. Three criteria are required when defining impact:
- A precise time horizon for short-, medium- and long-term
- Potential or actual impact?
- Positive or negative impact?

2. Risks and Opportunities are in reality linked to financial aspects. They are the financial risks and opportunities that can arise from the environmental and/or societal changes that your company can endure. Two criteria need to bedefined: 
- A precise time horizon for short-, medium-, and long-term
- Potential or actual?

Of course, if the IRO is defined as actual, it is logical that the timeline does not need to be applied. It is important to note that prior to defining the time horizons, it is important for the company to define what short-, medium- and long-term mean for them.

2. Analysis of Impacts, Risks, and Opportunities (IRO)

Once the ESG Universe has been defined, you can proceed to identify the impacts, risks, and opportunities (IROs). This step requires organisations to dig deeper into their sustainability matters, leveraging a broad array of resources including the ESRS, other ESG frameworks, scientific research, and media insights.

DMA phase 2, DMA identify IROs, impact risks opportunities

This holistic approach ensures a comprehensive understanding of the sustainability landscape, including potential financial implications. Defining the IRO with precision paves the way for informed decision-making and strategic planning.

3. Assessing the Severity of IROs 

Now that the IROs have been identified and defined, it is time to assess their severity. Evaluating the severity of impacts, risks, and opportunities consists of developping a scoring mechanism to rank sustainability topics by priority in order to determine those that must be considered as material and therefore be reported under the ESRS. This process will require cross-departmental collaboration to ensure a comprehensive assessment. 

This stage involves detailed criteria such as scope, scale, remediability, and likelihood, enabling a thorough understanding of the potential effects on the organisation and its stakeholders.

Overview of the different criteria:

  • Scope: an examination of the extent of the impact, questioning whether it affects a handful or thousands.
  • Scale: an assessment of the severity of impact, considering its potential to alter lives significantly. 
  • Remediability: a look into the feasibility of the mitigation
  • Likelihood: an evaluation of the probability of the impact occurring
DMA assessing impacts risks opportunities

Note that justification of the scoring is essential for transparency and mandatory for future audits, providing a clear rationale for the assessments made. It will also be the foundation for understanding and revisiting the evaluations in subsequent years. 

The financial department will need to assign concrete figures and interpretations to these assessments, ensuring that the evaluations are grounded in the organisation’s financial reality, as required under the ESRS. 

Additionally, keep in mind that the thresholds you originally set may shift over time as regulatory requirements are adjusted. We highly encourage companies to revisit these assessments annually, allowing for adjustments in strategy in response to evolving risks, opportunities, and strategic goals. 

4. Strategic Stakeholder Engagement

Engaging with stakeholders is more than a procedural step; it is a strategic initiative that enriches the DMA with diverse perspectives and insights. Effective engagement strategies, encompassing both qualitative interviews and quantitative surveys, are vital for capturing a wide array of viewpoints. 

DMA phase 4 stakeholder engagement

The stakeholder engagement also presents an opportunity for innovation, especially in the discussions with suppliers and employees who can offer valuable insights into sustainability practices and potential improvements. 

After collecting stakeholder feedback, the sustainability reporting team should conduct a final review of all identified impacts, risks, and opportunities, adjusting their assessments based on stakeholder input. These findings should then be presented to the board of directors for approval and strategic insight, laying the groundwork for developing effective mitigation strategies.

This step is instrumental in refining the DMA findings, aligning them with the organisation's strategic vision, and identifying innovative solutions for sustainability challenges.

5. Your DMA Result Assessment 

The next step in the DMA process involves a strategic assessment of the results, aligning them with the CSRD disclosure obligations. This requires a review of the identified IROs, ensuring their relevance and materiality to the organisation's reporting obligations. 

A key aspect of this phase is the development of a DMA matrix, a visual tool that aids in the communication of DMA findings to stakeholders, enhancing transparency and accountability in the reporting process.

phase 5 DMA, assessing DMA results, DMA matrix

6. Strategic ESRS Scoping

The Double Materiality Assessment enables organisations to identify disclosure requirements and data points necessary for CSRD reporting endeavours. By evaluating sustainability topics, organisations can categorise these into detailed lists of IROs, aligning them with relevant disclosure requirements defined by the ESRS and its list of topics, sub-topics, and sub-sub-topics.

While the DMA allows you to assess what topics are material, the ESRS scoping phase will define the different reporting requirements based on the ESRS lists. 

DMA phase 6, flowchart to determine ESRS

Getting you Set for a Successful DMA with Greenomy

It is a common mistake to see the Double Materiality Assessment as a mere procedural requirement for CSRD compliance, as discussed in our interview of CSRD expert, Quentin Henneaux. It is actually a strategic exercise that integrates sustainability into the core fabric of corporate decision-making. The six-step approach outlined above is designed to guide companies through a rigorous and comprehensive DMA process, laying a solid foundation for effective and transparent sustainability reporting.

If you would like to further your knowledge on the Double Materiality Assessment (DMA) for your CSRD reporting,  discover our free “Deep Dive on the Double Materiality Assessment (DMA)” ecourse presented by Greenomy Academy.

Looking for help for your CSRD reporting? Partnering with sustainability experts like Greenomy can provide invaluable guidance and support, ensuring that organisations not only comply with regulatory requirements but also leverage their sustainability reporting as a strategic asset.  Explore Greenomy's innovative CSRD solution to streamline data capturing and reporting for long-term efficiency and our Sustainability Advisory services where our experts will help you kick-start your CSRD reporting journey. Book a call for further details.


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