CSRD and double materiality: a new chapter in corporate sustainability

Introduction to CSRD

The European Union has introduced a new rule called the Corporate Sustainability Reporting Directive (CSRD). This directive is part of the European Green Deal and aims to strengthen transparency and corporate responsibility in terms of sustainability. By 2024, some 47,000 companies in Europe will have to comply with these new requirements. This means that companies will have to share detailed information on their actions and their environmental, social and governance (ESG) impacts.

Double materiality: what are we talking about?

The CSRD introduces a key concept: dual materiality.
Simple materiality focuses on financial aspects (financial materiality): it studies the positive (opportunities) or negative (risks) impact of sustainability on the company’s finances. Dual materiality also considers how environmental and social issues can influence the company itself (impact materiality).

To understand it simply, imagine a two-sided mirror:

1. Side one: impact materiality (environmental and social)
   How do the company’s activities (such as production and services) impact the environment and society?
2. Side two: financial materiality
   How do changes in the environment and society (such as climate change or new laws) impact the company?

Dual materiality helps companies to see both their impact on the world and how the world affects them. This encourages them to think more holistically and integrate sustainability aspects into their decisions.

In practical terms, how do you go about analyzing double materiality?

To apply double materiality, companies must follow several steps:

1. Identifying sustainability issues: determining which aspects of the environment and society are important to the company and its stakeholders (such as customers and employees).
2. Stakeholder consultation: talk to stakeholders to understand their expectations and concerns regarding sustainability.
3. Identification of Operational Results Indicators (ORIs ): find specific measures for each identified issue to assess the company’s performance.
4. Prioritizing IROs: rate and rank these measures in order of importance to see which are the most crucial.
5. Analysis of results and double materiality matrix The format of the report is not prescribed, but it is effective to create a visual map showing the most important issues for the company, both in terms of their impact on the world and the world’s impact on the company.
6. Taking action: using double materiality analysis as a decision-making tool to define and guide your CSR strategy

Double materiality, a key analysis for a transparent and solid CSR strategy

With CSRD and dual materiality, companies will have to adopt a more comprehensive and integrated approach to sustainability, and concretely :

• Enhance transparency: share clear and detailed information on their sustainability actions, and how they manage environmental and social risks and opportunities.
• Improve risk management: proactively identify and manage sustainability risks that could affect their operations.
• Adopt a long-term vision: integrate sustainability aspects into their business strategies to ensure sustainable and resilient growth.

Double materiality: who is concerned?

The CSRD imposes sustainability reporting obligations on various categories of companies according to a precise timetable and specific criteria:

• From 2025 (based on 2024 data): Companies already subject to NFRD must comply. This includes public-interest entities with more than 500 employees on average, and total assets of over €20 million or sales > €40 million.
• From 2026 (based on 2025 data): Other large companies, i.e. those with more than 250 employees, will have to report if they exceed two of the following three thresholds: €40m sales, €20m balance sheet total or more than 250 employees on average.
• From 2027 (based on 2026 data): SMEs listed on an EU regulated market with between 10 and 250 employees will have to start reporting. However, they will have the option of deferring their reporting obligation for three years, with a lighter standard.
• From 2029 (based on 2028 data): Non-EU companies generating sales of more than €150m in the EU for the last two consecutive years will have to comply if they have at least one branch or subsidiary in the EU generating more than €40m in sales in the previous year.

In conclusion, CSRD and double materiality mark a major step towards greater transparency and corporate responsibility in terms of sustainability. By requiring a holistic view of sustainability impacts and risks, this directive encourages companies to adopt more sustainable and resilient practices. This paves the way for a greener economy, where businesses not only prosper economically, but also contribute to a sustainable future for all.