Sustainability Gets Smarter: Microsoft Cloud Adds Double Materiality
The Corporate Sustainability Reporting Directive (CSRD) will require about 40.000 European companies and 10.000 non-EU companies to adopt the European Sustainability Reporting Standards (ESRS) starting in 2024. The directive aims to standardize and enhance transparency in sustainability reporting across the EU and internationally.
Over the next four years, the CSRD will initiate a ripple effect, gradually extending its reach to encompass more businesses. This rollout will ultimately impact thousands beyond European borders. As a result, many non-EU organizations will find themselves subject to disclosure obligations, even if EU regulations do not directly govern them. The CSRD considers double materiality requirements.
To address this regulation, Terra Reporting has developed a sophisticated Double Materiality Assessment (DMA) Module built on Microsoft’s Cloud for Sustainability, which follows European Financial Reporting Advisory Group (EFRAG) guidelines. This solution revolutionizes the assessment process, making it more accurate, efficient, and transparent.
What is Double Materiality Assessment?
To understand DMA, we must first consider what materiality means for sustainability. Materiality refers to an organization's significant economic, environmental, and social impacts or issues that substantively influence stakeholders' assessments and decisions. Materiality can be broken down into three things:
Impact: This is the extent to which an ESG issue affects the company financially, operationally, or reputationally.
Relevance: The level of interest and concern among stakeholders, including investors, customers, employees, and communities.
Risk: Is the potential for an ESG issue to create risks or opportunities for the company.
On the other hand, double materiality assessment is a crucial concept within the Corporate Sustainability Reporting Directive (CSRD), a European Union regulation that mandates comprehensive sustainability reporting for companies. The term “double materiality” refers to the dual perspective required for assessing materiality, incorporating both “inside-out” and “outside-in” perspectives:
Impact Materiality (Inside-Out): This perspective focuses on how the company’s operations impact the environment and society. It evaluates the significant positive and negative effects of the company’s activities on external stakeholders, such as communities, ecosystems, and the broader economy. The “inside-out” approach assesses the company’s global influence.
Financial Materiality (Outside-In): This perspective examines how sustainability issues affect the company’s financial performance and position. It considers risks and opportunities related to environmental, social, and governance (ESG) factors that could influence the company’s profitability, asset values, and overall financial health. This “outside-in” approach evaluates how external sustainability factors impact the company.
The term “double” emphasizes the need for companies to consider their external impacts on sustainability and the internal financial implications of sustainability issues. This comprehensive approach ensures that companies provide a holistic view of their sustainability performance, aligning with the CSRD’s goal of enhancing transparency and accountability in corporate reporting.
Terra Reporting’s Double Materiality Assessment Module (DMA)
Terra Reporting’s Double Materiality Assessment Solution is a Software-as-a-Service (SaaS) application designed to streamline the double materiality assessment process based on the European Financial Reporting Advisory Group (EFRAG) guidelines. It uses the Microsoft low-code, no-code Power Platform (Power BI, Power Automate, Power Apps) and the Microsoft survey tool Customer Voice to deliver a guided experience for executing the DMA.
Terra Reporting identified a lack of a comprehensive DMA component in Microsoft Cloud for Sustainability (MS CfS); therefore, it developed this solution to fill that gap and enhance sustainability reporting capabilities.
Microsoft Cloud for Sustainability - Double Materiality Matrix & Assessment - Terra Reporting
How Does Double Materiality Assessment Help Your Business?
The Double Materiality Assessment (DMA) simplifies compliance for businesses within the CSRD scope. It eases regulatory adherence without excessive manual effort.
Once material topics are selected, their disclosure requirements are seamlessly integrated into the CSRD solution.
Utilizing the same database as Microsoft Cloud for Sustainability ensures a smooth journey, aiding businesses in managing and reporting on sustainability initiatives effectively. Let’s look at the key features of DMA, also known as Double Materiality Assessment.
Analyzes organizational context.
Model organizational structure (organizational units, hierarchy, % ownership, facilities).
Identify stakeholders (groups, organizations, individuals).
Document value chain and activities.
Defines the scope of assessment.
Define the organizational and stakeholder scope.
Set the scope of sustainability topics to be assessed based on existing frameworks, extendible with organization-specific topics.
Determine the engagement method per stakeholder group (survey, 1-on-1 meeting, panel discussion, etc.).
Helps you efficiently engage with stakeholders.
Connect with stakeholders via various engagement methods.
Collect data on Impact Materiality, Financial Materiality, and Stakeholder Importance.
Generate automatically different surveys.
Consolidates reporting and defines material topics.
Based on the EFRAG Guidelines, calculate the Impact Materiality, Financial Materiality, and Stakeholder Importance scores for each sustainability topic.
Consolidate and visualize all data into a materiality matrix.
Recommend and finalize material topics and identify related disclosure requirements.
Generates documentation.
Document the process and outcomes thoroughly to facilitate auditing and reporting.
How to Implement DMA?
Executing DMA involves following a structured process to assess financial and non-financial impacts on corporate sustainability. Our guide, "The Step-by-Step Guide for a Double Materiality Assessment", provides detailed instructions and insights.
Terra Reporting’s Double Materiality Assessment Module is available on Microsoft’s AppSource. Microsoft audited and approved the module before it got listed on their AppSource website. Businesses interested in implementing this solution can find more information and access resources such as a demo video, a step-by-step guide, and a survey video through the provided links.
Conclusion
Terra Reporting DMA - Microsoft AppSource
In a world where sustainability is becoming increasingly important, having the right tools to assess and report on material issues is crucial. Terra Reporting’s Double Materiality Assessment Module, built on Microsoft’s Cloud for Sustainability, offers businesses a powerful tool to streamline their sustainability reporting processes, ensuring accuracy, efficiency, and compliance.
For more information, visit the Double Materiality Assessment Module on Microsoft AppSource or contact Terra Reporting for a live demo.
