Patrick Moloney

May 2, 2023

Double Materiality & the CSRD – Key lessons learned so far

The complex requirements of the CSRD and associated ESRS are currently leaving many companies in a state of confusion. What is required? When do they apply? Where do you even start? In this piece, two of our experts provide digestible lessons learned from Ramboll’s work to date in carrying out double materiality assessments in multiple companies and across differing sectors.

The starting point for any company in integrating the Corporate Sustainability Reporting Directive (CSRD) and associated European Sustainability Reporting Standards (ESRS) is at scoping and double materiality. Scoping to define ambition and legal boundaries but also the scope of the double materiality assessment to determine impacts as well as financial risks & opportunities. As the “disclosure season” has ended and companies focus on 2023 and 2024, many have commenced the double materiality assessment already. Below we outline some key lessons learned to date, to date being in italics because the list is sure to get longer with time.
1. Map business model & value chain to get a common point of reference
It is particularly important to map a company’s business model(s) and value chain as early in the process as possible to provide a common point of reference. Most large companies are used to mapping out their business model in their annual reports to contextualise the information they provide.
However, they typically do not include their value chain in this overview. Prior to the introduction of the CSRD, the value chain focus on ESG reporting was a much smaller topic. Moreover, it is a difficult task to illustrate complex global value chains in a digestible overview.
For double materiality assessments under the CSRD that’s often one of our first steps: i. e. extending a company’s business model illustration(s) into an overview of the business model and value chain. It is recommended to illustrate these on a single slide, or similar, to ensure all relevant elements are reflected. This is the point of departure and common point of reference for everyone who contributes to the assessment from therein.
2. Ensure quality over quantity in stakeholder involvement
Quality is more important than quantity in terms of external stakeholder involvement. Classic materiality assessments often resembled a competition for having surveyed or interviewed most stakeholders.
This is not the objective of the exercise and indeed can be a waste of very valuable resources. Double materiality assessments are more focused on actual impacts, risks and opportunities which is why they require more expertise and fewer opinions.
Involving affected stakeholders is still crucial to the overall process. Emphasis should be placed upon selecting the right stakeholders who are legitimate representatives of the most affected stakeholder groups. Furthermore, engaging with important stakeholder groups which whom the company has little daily interaction can add more value to the assessment than the sheer quantity of consulted stakeholders.
3. Be efficient by using “mapping” workshops
The assessment requires the identification of (potential) material impacts, risks, and opportunities concerning the 10 topical standards and multiple sub-topics and sub-sub-topics. But where do you start? We have experienced that an efficient way to kick-start the assessment are “mapping workshops” with a broad group of internal stakeholders who represent different business units, interact with different types of stakeholders, and jointly account for the core of the company’s knowledge on ESG topics.
Thereby, the company’s own knowledge of the different sustainability matters covered by the ESRS is consolidated effectively, and stakeholders who will likely be affected by data collection and reporting at a later stage learn about the new requirements early in the process.
Additionally, we include subject matter experts on relevant E, S, and G topics in these workshops who have experience with the respective industries and can help to uncover blind spots and challenge established narratives about the organisation. Due to the way that knowledge is clustered in most organisations, we typically recommend starting with a workshop on environmental topics and a second workshop on social & governance topics.

"Most companies conducting a double materiality assessment today should have started “yesterday” to be ready in time for their first CSRD reporting. "


4. Draw on existing assessments and company experts
Most companies conducting a double materiality assessment today should have started “yesterday” to be ready in time for their first CSRD reporting. Subsequently, there is limited time to conduct much research or many detailed assessments on all ESG topics covered by the ESRS standards. Internal or external experts with experience and expertise in the sector and the ESG topics are therefore key for preparing a quality assessment in a short timeframe. Another fast track is to draw on companies’ existing assessments, such as climate risk assessments for climate change adaptation, carbon footprints for the materiality of climate change mitigation, material flow assessments for resource use & circular economy, human rights impact assessments, or employee surveys for various social topics, etc. The main point here to remember is that one should not “reinvent the wheel”. Much of what a company is doing today with respect to ESG will be useful and applicable. It is about enhancing existing practices and processes rather than building completely new ones.
5. Do not under-estimate time and budget required
Additional time and budget for a detailed double materiality assessment pays back. Additional resources to conduct a more thorough double materiality assessment are well invested because getting the assessment right from the start helps to implement the CSRD efficiently and avoid unnecessary or double work in the future. If limited data exists, companies tend to rate more topics as material compared to what would be needed to avoid future issues of non-compliance when having reported too little.
Getting it right from the start allows to define the right KPIs, build the right systems for data collection and reporting, as well as include the right topics when updating policies, etc.
6. Utilise current risk management frameworks
Companies’ current risk management frameworks can be used to assess financial materiality. Company risk management assessments are typically based on the size of financial effects and their likelihood of occurrence – in other words, the same dimensions as financial materiality under the CSRD. With all the changes that the CSRD already requires, in most cases, there is no need to increase the burden of implementation by introducing a new framework for assessing financial risks (and opportunities) when companies already have a proven tool for the exact same purpose outside the context of ESG.
In some cases, the tools have even already been applied to selected ESG topics, such as climate. Additionally, using the same framework makes financial risks and opportunities related to ESG topics more comparable to those outside the field of ESG. Hence, the benefits of using the established risk management system for assessing financial materiality usually outweigh potential doubts.
7. Make life easy for the auditor
Working with auditors is key. They are willing to provide preliminary approval of the double materiality assessment methodology, and it should be acknowledged that auditors themselves are also still learning. Even though auditors might not be experts in human rights or biodiversity, their auditing capabilities are largely advantageous. We have found that many are willing to review double materiality methodologies before the actual reporting, which helps to ensure that the methodology meets the many requirements laid out in the CSRD and the ESRS standards. If adjustments should be required, this can be aligned prior to conducting the actual assessment and reporting to ensure that it gets the external assurance “stamp”.
Also, a double materiality checklist summarising the key requirements and how they are followed, facilitates auditor approval. Why make it difficult for auditors to approve your methodology and assessment if you can make it easy? By assembling a checklist comprising all requirements for double materiality assessments across the CSRD, ESRS, the 10 topical standards and the respective appendices, you can demonstrate that you have the overview of all the requirements and how you have applied them. What could be better suited to convince your auditor?
Moving forward; eating the elephant
Find comfort in the fact that you are not alone in the CSRD confusion. The scale and complexity are only dawning on companies now. But a lesson learned that is not outlined above: Eat the elephant one bite at a time. Start with scoping and double materiality, be patient and thorough but also realistic and pragmatic. Make sure all decisions taken in these early stages of the CSRD integration are logical and clearly articulated. And as pointed out already; make use of existing assessments, frameworks and - not least - experts to ease the adoption. Working together is, if not double the fun, then at least more rewarding - also when it comes to double materiality and the new financial standards.

Want to know more?

  • Patrick Moloney

    Director, Strategic Sustainability Consulting

    +45 51 61 66 46

    Patrick Moloney