This article provides you with an overview of the entire process of the double materiality analysis.
Background to the double materiality analysis
The double materiality analysis, as prescribed in the European Sustainability Reporting Standards (ESRS) for companies subject to CSRD reporting requirements, comprises the identification and assessment of impacts, risks and opportunities (IROs) of ESG topics. The aim of the analysis is to determine which topics are material for the company and must therefore be included in the reporting.
The ESG topics must be considered from a dual materiality perspective:
- Non-financial materiality (inside-out view) What positive and negative impacts does the company have on people and the environment?
- Financial materiality (outside-in view) What financial opportunities and risks do the sustainability issues entail for the company?
How do I find my way around the tool?
The dashboard (called overview) provides a structured overview of the entire process of the dual materiality analysis. The analysis is divided into several process steps, which you can open at any time via the menu bar or the dashboard. To carry out the materiality analysis correctly, you should work through the process steps in sequence:
- pre-analysis: this is the first step in which basic information is collected. The “Start” button allows you to enter this process.
- impact materiality: This is where the company's impact is assessed from an inside-out perspective. The “Overview” button takes you directly to this step.
- financial materiality: In this step, financial opportunities and risks are identified and assessed. The “Overview” button takes you directly to this step.
- completeness check: This section checks whether all relevant topics have been recorded. The topics are categorized based on their materiality: “Important, but not material”, “Increased value (case-by-case assessment)” and “Material”.
- finalization: The last step for final review and confirmation of the analysis results.
Further information on the dashboard can be found here.
You start with the pre-analysis
In this process step, the aim is to record the entire value chain with the economic activities and the associated stakeholders of your company in preparation for the double materiality analysis. The aim is to systematically identify relevant impacts, risks and opportunities along the entire value chain.
- Start with the pre-analysis by entering your company's upstream, own and downstream economic activities in the correct column under the “Value chain” view. It is important that you define a suitable delimitation of the upstream and downstream processes of value creation for your company.
- In the second section, “Stakeholder analysis”, the affected stakeholder groups along the value chain are entered. It is important here that all key players (e.g. suppliers, logistics partners, customers) are identified and included. To do this, click on the + symbol and select your stakeholder group. Continue by clicking on save and selecting the point(s) in the value chain to which the stakeholder group is assigned.
- In the last tab, “Stakeholder dialog”, you should describe your stakeholder groups in more detail. The previously selected stakeholders appear automatically as a list. Fill in the remaining columns with the relevant information. Try to look at your relationship from the perspective of the relevant stakeholder group and the resulting dependencies, requirements and concerns.
As soon as you have comprehensively recorded and understood the entire value chain and the associated aspects and have a consistent overall picture, you can move on to the next step, the impact materiality.
Control question: Is it possible for an external person to fully grasp and understand your company and the entire value chain based on the preliminary analysis?
Use the following video to find out more about how to best prepare for the DMA!
Please note: This video is currently only available in German.
Video "Recherche zum Einstieg"
You can find detailed instructions for pre-analysis here.
Moving on to impact materiality
Identifying and assessing impacts is about understanding what impacts the business has on the environment, people and governance issues. Use the results and understanding of your value chain from the previous step to capture all your impacts, both positive and negative.
The non-financial materiality assessment is divided into several individual steps in the module. Go through the steps one after the other as follows:
1. Impact AI
The Impact AI suggests potentially relevant impacts for your company based on the NACE codes you have selected. To do this, first go to the settings and click on your company profile. There you now enter your own economic activities including the NACE codes. In order for Impact AI to be able to make suggestions, the % figure must not contain a zero. You can find an overview of all NACE codes at the following link: https://nacecode.de/
Once you have created the NACE codes in the company profile, go back to the Impact AI view. Here you will now see a list of possible impacts that your company has on environmental, social and governance issues. Go through the list and select the (actual or potential) impacts that apply to your company using the plus symbol. You can find detailed instructions here.
Use the Impact AI to gain a basic understanding of the approach to the impact assessment in order to collect and formulate further customized impacts in the next step.
Control question: Have you looked at and incorporated all the relevant NACE codes and have you got a feel for how to formulate an impact?
2. Capture
This process step, together with the assessment, is crucial for the quality of the results of your materiality analysis. It is therefore very important that you take the time to work thoroughly here. The aim is to capture all company-specific impacts.
The "Capture" view already contains the impacts that you have selected from the Impact AI list. First fill in the missing information on the type of impact, where in the value chain the impact occurs, the person(s) responsible or contact person in the company and the stakeholder groups affected. To do this, click on the corresponding field in the row.
As the Impact AI cannot identify all of your company's impacts, you should add further impacts specific to your company. To do this, click on the Add data point button, which will open a pop-up window in which you can fill in the fields. You can find detailed instructions on how to record impacts and what an impact actually is here.
In this step, regularly go back to the pre-analysis to compare your work and check for completeness. Don't shy away from highlighting the good things your organisation does, but also reflect carefully on the negative impacts of your business model and way of working.
This is the only way to create a holistic picture of the double materiality.
Control question: Does the picture from the pre-analysis match the impact assessment?
3. Rating
The assessment is about systematically determining the material significance of the environmental, social and governance impacts. It helps to focus on the most important issues, i.e. those with a particularly high risk and scope. It also provides you with a basis for measures and concepts beyond the report. The more serious, widespread and irreversible the impact, the more urgent preventive or corrective measures are.
For each impact, add a description that establishes a link to the company and creates an understanding of the scope. In addition, give your word a numerical value to support your analysis in a fact-based and data-driven way. You can find a detailed guide to impact assessment here.
The impact assessment is considered to be in a good state if the assessment of significant impacts has been carried out systematically, comprehensibly and comprehensively. This means that all relevant factors have been recorded and impacts have been assessed in a methodologically sound manner.
Control question: Is the numerical assessment of impacts not just based on gut feeling, but data-based and consistent?
4. Assignment
In this step, you assign your impacts to the corresponding (sub)topics. The assignment enables a structured, comparable and comprehensible assessment of the sustainability aspects and ensures that all relevant areas are systematically covered.
Assignment to sub-topics allows individual sustainability aspects to be analysed in a more targeted manner and helps to identify focus areas. It also allows you to carry out a comparison with industry reports in order to identify any gaps.
You can find detailed instructions on assigning impacts here.
Control question: Have all identified impacts been correctly assigned to the corresponding ESRS topics and sub-topics so that a consistent and comprehensible overall picture has been created?
5. Review
In this process step, the information on impact materiality is checked for accuracy and completeness.
The results of the previous steps are summarised below. In the final step of impact materiality, the accuracy and completeness of the information is checked to finalise this step.
The impact assessment is followed by the financial materiality
The financial assessment within the double materiality analysis evaluates the financial impact of material sustainability issues on the company. It analyses the extent to which environmental, social and governance factors can influence financial performance, liquidity, investments or business models.
The focus is on financial risks, such as rising energy costs, stricter regulatory requirements or market risks due to changes in consumer behaviour. At the same time, financial opportunities are also considered, for example through sustainable product innovations, efficiency improvements or new business models.
Go through the process steps one after the other as usual:
1. Capture
This process step, together with the assessment, is crucial for the quality of the results of your materiality analysis. It is therefore very important that you take the time to work thoroughly here. The aim is to record all company-specific opportunities and risks.
In the ‘ Capture’ view, you identify all financial opportunities and risks arising from sustainability issues for your company. Analyse which positive or negative financial impacts may result from regulatory, market-related, environmental or social developments.
Use internal and external sources for this (e.g. company data, market analyses, regulatory requirements, competitive developments) and engage in dialogue with relevant departments (e.g. finance, purchasing, risk management).
You can find detailed instructions on recording risks and opportunities here.
Control question: Does the picture from the impact assessment match the financial assessment?
2. Rating
The rating of risks and opportunities requires a systematic approach that integrates both quantitative and qualitative methods. Start by assessing the probability of the identified risks and opportunities materialising. Historical data, market analyses and expert opinions can be used to determine realistic probabilities of occurrence. A high probability of occurrence can indicate significant risks that need to be addressed urgently, while opportunities with a high probability represent potentially valuable business opportunities.
The next step is to quantify the potential financial impact, where possible. This involves estimating how risks and opportunities could impact your company financially. Various scenarios can be developed, taking into account both optimistic and pessimistic assumptions. If you have an established risk management system, use these values and methods as a guide.
You can find detailed instructions on recording risks and opportunities here.
Control question: Is the numerical rating of risks and opportunities in line with the risk management system and does it provide a consistent picture?
3. Assignment
In this step, you assign your impacts to the corresponding (sub)topics. The assignment enables a structured, comparable and comprehensible rating of the sustainability aspects and ensures that all relevant areas are systematically covered.
The assignment to sub-topics allows individual sustainability aspects to be analysed in a more targeted manner and helps to identify focus areas. It also allows you to carry out a comparison with industry reports in order to identify any gaps.
You can find detailed instructions on mapping impacts here.
Control question: Have all identified opportunities and risks been correctly assigned to the corresponding ESRS topics and sub-topics so that a consistent and comprehensible overall picture has been created?
4. Review
In this process step, the financial materiality disclosures are checked for accuracy and completeness.
The results of the previous steps are summarised below. In the final step of financial materiality, the accuracy and completeness of the disclosures are checked to finalise this step.