In July this year, we held a webinar on double materiality: how to do it successfully, with our expert consultant in sustainability and CSR, Arnau Domènech.
This webinar was key to discovering how to develop dual materiality, following the indications of the Commission’s Delegated Regulation 2023/2772 on the rules of presentation of information in sustainability and other sources of information, with the aim of having a more efficient and sustainable internal management and being prepared for the future sustainability reports that will replace the current non-financial information statements (NFI).
If you were unable to attend, this article provides a summary of the meeting and the main conclusions.
Introduction to dual materiality
Dual materiality is the evolution of conventional materiality, which focuses solely on our external impact and stakeholder assessment. Impact materiality still exists and can be a useful tool until dual materiality is developed.
However, it is important to be aware of dual materiality. This is mandatory for companies that have to prepare their sustainability reports and has a number of benefits for all organisations, as it analyses both the financial and the impact dimension and uses the results to identify the steps to be taken.
Dual materiality focuses on the importance for organisations to consider not only how their activities have a positive or negative impact on their environment in the social, environmental, economic and governance spheres, but also to consider other external or internal sustainability factors that have or may have a positive or negative impact on their relationships. Thus, dual materiality focuses on how an organisation’s activities impact externally and how its finances can be materially affected by sustainability issues.
In this sense, the impact, risks and opportunities of the company (IRO) need to be identified and assessed, and the value chain needs to be clearly defined.
The Commission’s Delegated Regulation 2023/2772 defines the value chain as “the full range of activities, resources and relationships associated with the company’s business model and the external environment in which it operates”. It includes the entire process from the production of products or services to their delivery, consumption and end-of-life.
It could therefore be classified as follows
- Upstream: Supply chain operations (companies that supply products or services). Not just direct contractual relationships.
- Own operations: This includes the parent company and subsidiaries, and process maps can also be useful to keep track of the activities carried out in the organisation.
- Downstream: These are the products or services sold until the end of their useful life. For example, customer service or waste management.
The financial, geopolitical and regulatory environment in which the organisation operates are another consideration when identifying IROs and affected stakeholders.
What are its phases?
In developing dual materiality, the process can be divided into 3 phases:
Phase 1. Contextualization of the sector
This phase is essential as it involves the analysis of the business model, the context, the sector and the internal and external stakeholders, aspects that will help to identify the value chain. It is also necessary to monitor competitors and voluntary indicators that can provide information, such as the sector-specific Global Reporting Initiative (GRI). Both internal and external sources of information should be used.
Phase 2. Identification of potential IROs
Based on the knowledge gained in the first phase and the organisation’s internal knowledge, potential IROs to be considered in the dual materiality assessment are identified and selected. It is important to know, as a minimum, all topics covered by the thematic European Sustainability Reporting Standards (ESRS) (environmental, social and governance).
Phase 3. Assessing the IROs
Finally, the IROs are evaluated in order to identify the most relevant ones, following the criteria of the impact dimension and the financial dimension, as indicated in the Delegated Regulation 2023/2772. At Energía Local we use several reference sources in addition to the regulation, such as the EFRAG or GRI guides, to find the most appropriate methodology for the elaboration of dual materiality for each organisation.
The result of dual materiality is the essential basis for future sustainability reports, as information on the identified IROs must be reported.
Energía Local helps you with dual materiality
As mentioned in the article, dual materiality is key to future sustainability reports and their reporting obligations. It also benefits the smooth running of the organisation by identifying and managing IROs and proactively anticipating possible internal or external changes.
If you are interested in finding out more about dual materiality, please do not hesitate to contact our team. We will advise you personally.
