One of the significant shifts brought about by the Corporate Sustainability Reporting Directive (CSRD) in sustainability reporting is the introduction of the Double Materiality Assessment (DMA). As a core element of the CSRD, the DMA is essential for compliance but has proven to be one of the most challenging aspects for companies to implement. On average, conducting a DMA takes around three months.

As the process and methodology of a DMA are not prescribed, first wave entities have done the DMA in a variety of ways. EFRAG recently published a report on how large EU companies are initially implementing the European Sustainability Reporting Standards (ESRS). This mirrors the practices and challenges we’ve experienced with our own customers.

10 Observed Practices to follow or avoid

Here are some of the practices EFRAG observed among the early adopters that we also suggest you adopt:

1. Make your DMA objective and evidence-based
   In contrast to a mainly qualitative and judgment-based approach, an evidence-based approach uses data from both internal and external sources. 70 % of early adopters have adopted this approach, helping them set the right ESG priorities.
   

2. Receive input from internal experts
   Using internal experts enhances the data quality compared to a survey. Companies have aimed to engage the experts in a structured manner, using workshops, interviews, and focus groups. There are likely employees within your company that should be engaged in the process. This could be employees who have specialized knowledge, skills, or experience related to the material ESG issues, and they can help set thresholds and be reliable sources for datapoints.
   

3. Interact with stakeholders
   Companies have considered many different options to engage with stakeholders. To ensure in-depth views, EFRAG found that 70 % have run interviews with stakeholders*. Workshops have also been increasingly preferred. As surveys alone give insufficient stakeholder expertise and inconclusive output, only 5 % used surveys as their main channel, and instead 70 % used surveys in combination with interviews or workshops. Combining engagement channels can help your company rank the importance of the topics.
   

4. Deploy cross-departmental collaboration
   All companies facilitate collaboration across various departments to define the double materiality and later on report on the ESRS. Typically, five or more departments are involved, including Sustainability, Finance, Risk Management, HR, Internal Controls and Supply Chain.  

5. Acknowledge the need for IT transformation
   Many companies have difficulties deciding which software and technology to use, however, 85 % of companies report a need for IT transformation to deal with the CSRD reporting. To emphasize the scale of data management needed, the ESRS standards have more than 1000 datapoints a company can potentially report on, and it may involve around 50 employees or more to collect and report on the datapoints for large companies. Among the companies observed, IT and infrastructure for data management are essential for the reporting process, significantly reducing their overall reporting burden.  
   

6. Improve data quality controls
   90 % have started improving their data quality controls, mirroring the standards used in financial reporting. By adopting internal control techniques like those used in financial reporting, companies ensure the accuracy and integrity of their ESG data. This positions companies to better manage the increasing complexity and volume of sustainability data, ultimately leading to more transparent and accountable reporting.
   

7. Integrate DMA results into strategy & decision making
   The results of the DMA are valuable for the company’s strategy. Beyond reporting, it's essential to integrate these insights into your business approach and foster a supportive culture. Identifying business impacts, risks, and opportunities will guide decision-making and help prioritize resources for monitoring and improving ESG performance. Success lies in leveraging the CSRD framework to make sustainability actionable, rather than just viewing it as a compliance burden.

8. Have the right governance in place
   Clear governance and reporting oversight need to be done on a high level. Early adopters are dealing with ESG governance at the executive and board levels. Forums are needed to exchange updates and implications for the other functions and make decisions.
   

And avoid the following observed practices:

9. Not integrating DMA results into gap analysis
   Many organizations have not yet integrated the outcomes of the Double Materiality Assessment into their ESRS gap analysis**. It consists in assessing gaps between the company’s existing reporting practices and the ESRS requirements. Not performing it may result in including more datapoints than the standards require, potentially diverting attention from the essential information that needs to be reported. A clear understanding of the reporting requirements from the material topics is essential, as it helps direct efforts where they are most needed.
   

10. Insufficient efforts deployed to understand the value chain
    Several reporting elements in the ESRS are related to the company's value chain, yet the value chain appears to be the least developed and most challenging aspect of the CSRD reporting process for companies. Many struggle with understanding their value chain and defining its boundaries. 90 % of the observed companies are still refining their value chain mapping, aiming to find the optimal level of granularity. Furthermore, companies have reported challenges in establishing communication with their supply chains.
    

Early adopters are making headway with their DMA, setting an example for others to follow. Hopefully, you now feel more confident about what to do—and what to avoid—when conducting your own DMA. The process can still be challenging, especially when navigating the complexities of the CSRD requirements. Take a look at our article for further guidance on how to conduct a DMA.

How can Celsia help?

We offer double materiality assessment tracks to support companies in their assessment of their material topics. We have simplified the CSRD’s complex legal text into clear explanations and can help you map out the various standards, topics, and sub-topics down to a metric level. Our team provides guidance to identify which data you need and how to collect it, document it, and link it to relevant reporting indicators. Easily integrate with existing systems and import data from any source.  

With our software, you can centralize your CSRD work in one platform, allowing you to assign tasks and collaborate seamlessly with your colleagues. The software automatically generates a CSRD report based on your assessment and data input. Plus, our expert team will offer you the support and guidance needed to make this journey smoother.

_{* A stakeholder is any individual, group, or organization external to the undertaking that can affect or be affected by the undertaking, including those directly impacted and users of sustainability statements.}

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**The Gap Analysis is a strategic process that identifies gaps between a company's existing ESG data and the CSRD disclosure requirements. The Gap Analysis serves as a guide, helping companies navigate toward full compliance with CSRD standards.}

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