The EU Corporate Sustainability Reporting Directive (CSRD) has been in force at EU level since 5 January 2023 and introduced changes to sustainability reporting, including the concept of double materiality. All companies subject to CSRD reporting requirements must now conduct a double materiality assessment. Companies that are not yet subject to CSRD reporting requirements should also consider conducting a materiality assessment based on the principle of double materiality, as the EU directive significantly changes the scope and nature of corporate sustainability reporting and progressively expands the group of companies subject to reporting requirements. Here we provide an overview of the topic and two questionnaire templates.
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The CSRD and double materiality
The CSRD replaces the Non-Financial Reporting Directive (NFRD) and introduces several significant changes to sustainability reporting, most notably the concept of double materiality. Double materiality means that companies must consider sustainability matters from two perspectives: the so-called outside-in perspective and, conversely, the inside-out perspective. Under the CSRD, companies are required to analyse both the effects of sustainability matters on the company (outside-in perspective = financial materiality) and its financial performance, and the effects of their own business activities on people and the environment (inside-out = impact materiality) when determining which matters are material to them. Examples of outside-in matters include political regulation, the costs of adapting to climate change, and the availability and prices of raw materials. Examples of inside-out impacts include greenhouse gas emissions, air pollution and workers’ rights. In practice, the new terminology means that companies are required to conduct a double materiality assessment and apply uniform reporting standards, the European Sustainability Reporting Standards (ESRS).
The two perspectives themselves are not entirely new. Previously, a matter was considered material in sustainability reporting if it had material effects in both dimensions of sustainability, externally and internally. Both perspectives had to be satisfied at the same time for a matter to become reportable. Under the CSRD, it is now sufficient for a matter to have material effects in either of the two dimensions: either opportunities and/or risks arise for business performance (outside-in = financial perspective), or the company’s business activities have a significant impact on the environment and society (inside-out = impact perspective). To illustrate this: if a company previously did not report a particular matter because it was relevant only in terms of impact (inside-out) but not in terms of business relevance (outside-in), reporting on it would now be mandatory. As a result, more matters will generally be classified as material and the content subject to reporting requirements will be substantially expanded under the concept of double materiality. Through this expansion, the CSRD aims to achieve more balanced reporting and better comparability between companies. Sustainability reporting is placed on a par with financial reporting in terms of its importance.
Double materiality assessment: an example
What does an assessment from both perspectives look like? How can the principle of double materiality be applied? The following example concerns a company in the automotive industry. From the impact perspective (inside-out perspective), the company’s business activities can have negative effects on the environment and society. Environmental impacts may arise, in particular, where a car manufacturer produces vehicles with combustion engines and electric motors, resulting in CO2 emissions and other pollutants during production. In terms of financial materiality (outside-in perspective), examples include higher energy costs and regulatory and legal requirements, such as legal requirements to reduce CO2 emissions, which can create financial risks for the company and lead to higher production costs.
The EU CSRD progressively expands the group of companies subject to reporting requirements. The reporting requirement covers all companies listed on an EU-regulated market, with the exception of micro-enterprises. It also applies to non-listed companies that meet certain criteria relating to balance sheet total, turnover and number of employees. Further information on the criteria and timetable is available here: Corporate Sustainability Reporting Directive (CSRD)
Conducting a double materiality assessment: questionnaire templates
Double materiality assessment in accordance with the European Sustainability Reporting Standards (ESRS)
The CSRD requires a double materiality assessment to identify a company’s relevant sustainability matters. Companies subject to reporting requirements must conduct a materiality assessment based on the principle of double materiality. In practice, the EU directive is implemented in accordance with uniform reporting standards, the European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG). The ESRS specify the reporting content by setting out how affected companies must report on their sustainability matters. The ESRS are structured around the environmental, social and governance topics (ESG). Under the CSRD and ESRS, material sustainability matters are identified across the entire value chain with the involvement of internal and external stakeholders.
On 31 July 2023, the European Commission adopted the delegated act for Set 1 of the European Sustainability Reporting Standards (ESRS). The final standards are available in 23 language versions, including German, and can be accessed via this link: First European sustainability reporting standards.
Conducting the double materiality assessment:
- Preparation: review the cross-sector and sector-specific ESRS requirements
- Identify stakeholder groups across the entire value chain
- Identify material sustainability matters using an online survey, taking both the outside-in and inside-out perspectives into account
- Define thresholds for the final determination of material sustainability matters
- Visualise the results in tables, text or charts
- Publish the sustainability information in the management report
- Repeat the assessment after approximately three to four years
Questionnaire templates for the double materiality assessment
The European Sustainability Reporting Standards (ESRS) set out cross-sector matters that affected companies should consider in their double materiality assessment. These matters are divided into the three ESG areas: environmental, social and governance. They provide the starting point for analysing the most material matters. Our questionnaire templates incorporate the topics proposed by the ESRS for both the outside-in and inside-out perspectives. You can use our two-part double materiality assessment template free of charge as a guide. Using the blue “Use” link, you can copy both sample surveys to your LamaPoll account and adapt them to your company’s individual requirements.
What other changes are there to the double materiality assessment?
In addition to the new concept of double materiality and the expanded, standardised reporting requirements, the CSRD introduces two further important changes to sustainability reporting. Companies should take these into account at an early stage when planning their double materiality assessment: the requirement for external assurance and the publication of sustainability information in the management report.
- External assurance: The CSRD provides for sustainability reporting to be subject to external assurance by independent assurance providers in accordance with defined assurance standards. Initially, limited assurance is envisaged. In a second step, reasonable assurance is planned.
- Publication in the management report: Under the CSRD, sustainability information is to be disclosed exclusively in the management report and therefore published as a mandatory part of the annual reporting, making this information easier to access. Disclosure in a separate non-financial report, as was previously common, is therefore no longer possible.
These changes place sustainability reporting on a similar footing to financial reporting, giving sustainability even greater importance than before.
With LamaPoll, surveys can be created quickly and easily. The tool offers many options for individual adjustments. The help pages are useful for solving many questions independently. For special requests, competent and easily accessible customer support is available.
What is LamaPoll?
LamaPoll is a survey tool for creating employee surveys and employee satisfaction surveys online. With LamaPoll, you can create, conduct and analyse all types of employee surveys. Create your employee survey in just a few steps, adapt it to your company’s corporate design, and invite employees conveniently by email or via your intranet. You can quickly gather insights to help improve employee satisfaction. You can sign up for our survey tool free of charge and immediately conduct surveys for up to 50 employees with no obligation. If you need more responses for your online employee survey questionnaire, simply choose one of our monthly plans. You can also use our questionnaire templates and examples for employee surveys.
