The Step-by-Step Guide for a Double Materiality Assessment
A double materiality assessment (DMA) analyses the impact your organisation has on the environment and society, as well as how the environment and society impact your activities in return. The reporting guidelines for European Sustainability Reporting Standards (ESRS) from European Financial Reporting Advisory Group (EFRAG) explain how to identify the most material sustainability matters for your organisation.
While giving you some general outlines for the assessment, many organisations may still value a more pragmatic step-by-step guide on how to approach the assessment, which is provided below. Of course, within the ESRS guidelines there are still elements up for interpretation, meaning there is not one defined roadmap to do it. The steps below can get you started and allow you to tailor them based on your organisation and context.
8 Key Steps for Effective Double Materiality Assessment
1) Prepare Well
First things first, if you want an accurate materiality assessment, a careful preparation will set you up for success. Collect up-to-date ESG performance reports, financial information, risk assessment and other recent reports of your company to consult during the assessments.
These will give you a first snapshot of how the organisation is doing at that time. Map out the internal stakeholders that will need to be involved and create a project team with defined roles and responsibilities.
Make sure you have access to a recent competitor analysis for insights about current market trends and players. Lastly, it is valuable to have a clear mapping of your value chain with identifications of the most important stakeholders in each step.
2) Define Your Scope
Defining the extent of your materiality assessment is crucial to plan out the process effectively and ensure every part of the assessment is completed in a high-quality way. With your project team and the management board, it should be validated what stakeholder groups are included in the stakeholder engagement, what business entities fall into the scope of the assessment, and how to approach the entities your organisation is (partly) owner of.
Further, it should be crystal clear what the time projection of the assessment is.
Will you be asking the stakeholders about the importance of a topic for the coming year?
Do you want to see their perspective for the next three years, or five?
Answering questions like this will ensure all assessments are comparable and a faithful representation of the input you receive.
3) Create a List of Possible Material Topics Necessary for a DMA
After collecting all background information about your organisation, it is time to build a longlist of material topics. These topics can be found by researching sector associations, industry reports, peers or competitors and of course reporting standards such as ESRS. Collect all possible material topics in a list, take away any duplicates that may occur and write out a definition for each topic that is understandable for all stakeholders you’d like to engage with on the topics.
If you want to make one hundred percent sure that the list is complete and the definitions are clear, it pays off to conduct two or three test interviews with stakeholders. It is possible they mention a topic that is not featured on the list yet, or they could be confused by some terminology. After this step, you are all set to engage with your stakeholders.
4) Engage with stakeholders
When the assessment is prepared and the scope defined, you can start collecting the perspective of your stakeholders. In this step, you capture the perspective of your stakeholders through surveys, interviews, panel discussions, document analysis, meetings and other ways of engagement.
Per engagement, you should pay attention to capturing as many insights as possible to use in the assessment, as it is not only important to understand what topics are material to your stakeholders, but also why.
The documents that provide this reasoning could be meeting notes, recordings, written answers from a survey or email, or summaries. They are useful for building your sustainability strategy as well as providing the paper trace in the assurance process after the assessment is completed.
When managing these insights, careful attention should be paid to ensure every file is linked to the correct stakeholder and material topic.
5) Financial Materiality in Double Materiality Assessment
If you want to be time-efficient, the financial materiality assessment can be prepared while during the engagement process with stakeholders. While waiting for survey entries and in between meetings and interviews, the project team can work on researching defining risks and opportunities linked to the material topics, and collect their source documents.
With these defined, a meeting can be set up where the relevant stakeholders – usually those working in risk and finance departments – assess the severity and likelihood of each of the sustainability risks and opportunities. It is encouraged that the stakeholders involved share their reasoning and motivations with the others to get the ultimate financial materiality per topic.
Again, it is important to capture these reasonings and motivations so afterwards it is clear what the scores and following decisions are based upon.
6) Impact Materiality in Double Materiality Assessment
The first step for assessing the impact materiality is to define what the positive and negative impacts are of the material topics based on research and expert input where needed.
The challenge for the impact materiality step is to identify the stakeholders with the relevant knowledge to assess the scale, scope, irremediability and likelihood of the impacts. The stakeholders for this should understand the type of activities and industry the organisation operates in and grasp the impacts they can have on people and planet. It is possible that these stakeholders are not all internal but can be found outside of the company.
Incorporating double materiality assessment (DMA) helps organizations to fully comprehend the broader impacts on both the financial and non-financial aspects of their operations.
7) Consolidate and Visualize
At this point, the financial and impact materiality are assessed, and you have consulted your stakeholders. All this input should be combined to understand the double materiality of each topic.
This can be done by creating a matrix graph with financial materiality on one axis and impact materiality on the other. This way, it is clear at once what topics are assessed as the most material, namely those that are the most top right.
By cross checking these top right topics with the most important topics, your organisation can validate the final set of material topics. This matrix is a commonly used method to plot the assessment results, yet also a list with results or other visualisation alternatives can be used.
8) Report & Reflect: Documenting the DMA Journey
After all steps are completed, a text should be written about the whole process. This text is to be used in your sustainability report, and can offer a comprehensive explanation for the auditor who conducts the external assurance of the report. The smartest way to go about it is to write the text during the process so no valuable information can go lost.
Conclusion
For many of the steps, a lot of time-consuming manual work and cross-organizational collaboration is involved. Besides this, the capturing of all insights, information and data calls for an effective way to store and manage them, to fully deploy the valuable input from all stakeholders.
Both for the manual work, collaboration and information storage, it can pay off to work with a software solution to lighten the burden. A software to collect and manage all source documents, automate stakeholder assessments, and report all the steps can ease the process and save your project team a lot of valuable time.
To find out how the Terra Reporting solution can streamline your materiality assessment, you can book a free demo or get in touch.