Double Materiality Assessment: Early Practices and Process Disclosures

Janina Laine – Double Materiality Assessment: Early Practices and Process Disclosures

My master’s thesis, related to double materiality assessment practices and process disclosures, aims to shed light on how double materiality assessments are conducted and how the assessment processes are disclosed. The research was conducted through semi-structured interviews with companies that were among the first to conduct double materiality assessments. 

Nowadays, companies must report relevant, reliable, and comparable sustainability information. Various stakeholders have shown interest in this information, but the challenge has been the evaluation of the data defined as material. This is because the process for identifying, assessing, and scoring the topics to be reported has not been disclosed in detail. The concept of double materiality has emerged as a vital element in sustainability reporting with the introduction of the Corporate Sustainability Reporting Directive (CSRD). It requires companies to assess and disclose both their impacts on society and the environment, and how the surrounding society and the environment impact the company. Reporting based on double materiality assessments is just beginning, and the first disclosed assessment practices can significantly influence the development of new, widely accepted double materiality assessment practices. The main findings outlined next provide insights into conducting double materiality assessments, which allow for a better understanding and evaluation of the reported information.

First, the findings show how companies perform double materiality assessments in different ways and that there is lack of standardized processes, which causes uncertainty for companies when carrying out the assessment and justifying their decisions. Companies have developed their own ways to conduct the process, and those that recognize the value of double materiality assessment for business development and learning, invest more comprehensively in the process. These companies engage internal employees deeper in the process and actively collaborate with external experts. In contrast, companies that conduct double materiality assessments primarily to comply with requirements tend to outsource the process more heavily to external experts, resulting in lower commitment and expertise within a company. These differences highlight why comprehensively conducted processes should be transparently disclosed, as the first companies to conduct and disclose double materiality assessment significantly influence the development of widely accepted practices and can set benchmarks for others.

It is also typical to discuss the process beyond company boundaries. Contemplating the number of topics, scoring them, and relating them to the overall picture of the company is still very subjective, and there are differences between companies regarding what is considered sufficient and the correct way to justify the topics. Furthermore, stakeholders are involved and engaged to varying degrees in different phases of the process from identifying the topics to scoring and validating the results. All in all, at this stage, double materiality assessment is emphasized as an opportunity to learn and develop best practices over time.

Eventually, disclosing double materiality assessment processes is still inconsistent. Some companies publish detailed information on the process while others provide vague explanations without details. Also, some companies don't want to disclose details about their double materiality assessments until it is required by the CSRD although all companies emphasize the importance of transparency. However, as noted, the commonly used practices and disclosure processes become standardized regardless of whether they are best practices. Nevertheless, the transparency of the disclosed process is not at the level it could be. One of the reasons may be that companies are not used to disclosing information about materiality assessments in more detail and, on the other hand, companies may not have identified the users of the reports and their information needs. In addition, companies are uncertain about the correctness of the process and their choices, so they prefer first to see how other companies have conducted and disclosed their processes. This way, they might lose competitive advantage and legitimacy and let other companies establish commonly accepted practices, whether they are comprehensive or not.

To conclude, the early adopters of double materiality play a crucial role in standardizing new materiality assessment and disclosure practices. Disclosures from these pioneers are beneficial for influencing the standardization of established practices and improving the usability of sustainability information. By disclosing information on the double materiality assessments, companies will gain a competitive advantage and recognition for their comprehensive work. Altogether, these pioneers can set the level of detail for sustainability information higher than it has been in the past, and thus contribute to a more sustainable future.
 

Reference:
Laine, J., 2024. Double materiality assessment: Early practices and process disclosures (Master’s Thesis). Aalto University, Espoo. Available at: https://aaltodoc.aalto.fi/items/009afc54-9f3b-4f29-a980-2fe7a88898f5