The European Union’s Corporate Sustainability Reporting Directive (CSRD) is a highly impactful regulation that will transform how your company reports sustainability information. By design, the CSRD, in part, aims to raise sustainability reporting standards to the same level as corporate financial reporting by mandating disclosures of certain environmental, social and governance topics.
Around 50,000 companies will be in-scope of CSRD implementation. To identify the topics for disclosure, the approach requires a ‘double materiality’ assessment. This broadens the concept of materiality from an exclusive focus on financial materiality to one that includes a view of your impact on all stakeholders.
To determine whether a sustainability matter is material from a financial or impact perspective, or both, companies will likely need a greater understanding of sustainability matters in their value chain to measure and assess financial and impact materiality.
In-scope companies in Ireland continue to prepare for their expected reporting obligations. Our work with clients across all industries has uncovered common pitfalls when clients design and perform materiality assessments. We have collated the following insights to help you avoid making similar mistakes.
Mistake #1: Rapidly producing a materiality assessment without documentation
When conducting an initial materiality assessment, some companies focus solely on quickly producing the assessment report without considering the need to document details about the process and sources of information. As part of the sustainability statement, there is a need to disclose the details of your double materiality process, together with the governance process undertaken and this is best evidenced through a detailed assessment document.
Mistake #2: Performing a high-level materiality assessment that does not dig into subtopics, impacts risks and opportunities, or the value chain
A common pitfall is performing the assessment at the topic level rather than at the subtopic analysis. Companies increase compliance risk when sustainability analysis lacks depth and/or impact definition, risk identification, opportunity assessment and value chain consideration regarding where the impact or financial materiality occurs.
Mistake #3: Relying solely on the ESRS list of sustainability matters
The ESRS requires consideration of other entity-specific topics and industry frameworks in materiality assessments. For example, consideration of the importance of taxation related topics to your company.
Mistake #4: Depending on a single assessment tool
Many companies have not yet fully integrated sustainability matters into their reporting frameworks. As a result, they will need to use a combination of tools to assess the impacts, risks, and opportunities related to sustainability. Scoring tools, web scraping, interviews, workshops and peer benchmarking are all effective methods to evaluate the impacts and determine the level of risk and opportunity. However, a combination of these tools can be the best solution.
Mistake #5: Placing unequal weight on either impact or financial materiality
Undertaking an impact materiality assessment is typically the initial stage for most companies. It can identify material matters and require significant internal engagement for a financial materiality assessment. Impact and financial materiality are equally important, and both can include impacts, risks or opportunities.
Mistake #6: A siloed approach without engaging the entire enterprise
Performing the materiality assessment through a single function in a siloed manner might result in incomplete reporting outputs, which could lead to long-term issues. If enterprise and subsidiary entity stakeholders are not involved, critical components of the value chain might be missed, a risk may be overlooked, or there could be a misalignment between group and legal entity risks and opportunities.. It is crucial to engage the right stakeholders to ensure effective and accurate reporting.
Mistake #7: Leaving your assurance practitioner in the dark
Time is limited when it comes to reporting. Therefore, involving your assurance practitioner early on in the development of your materiality assessment and documentation approach can be quite helpful. This will allow you to address any potential concerns about the process and available documentation upfront and ensure that there is enough time to align expectations before the start of the assurance engagement.
Mistake #8: Not performing the ‘stand back’ assessment
While companies may have established a detailed scoring methodology and rating scales to score the identified sustainability matters, it is important for the company to stand back and consider what other information is in the public domain, such as other sustainability reports, press releases and so on. The company should consider whether any sustainability matters are given significant prominence in other external sustainability reports,and could be construed to be material to the company yet are not included in the CSRD report. The company should ask itself why that is and, if those matters are material to the company, they should then be included in its CSRD report.
We are here to help you
We can help you achieve CSRD compliance. Our collaborative approach allows us to understand your business and its CSRD requirements. With PwC’s global network, we can draw on specialised expertise and best practices from other regions to guide your company through the constantly changing corporate sustainability reporting landscape. If you encounter CSRD challenges and want to discuss them with our experts, contact us today.
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