Since January 2024, large listed companies have been required to comply with the Corporate Sustainability Reporting Directive (CSRD). While some organisations used the CSRD as guidance for their 2023 reports, the full effect will be felt in early 2025 when 2024 annual reports are published.
For many financial institutions, the implementation journey began in early 2023 with the preparation of the Double Materiality Assessment (DMA) as a starting point for reporting on material sustainability matters, aligned with the connected European Sustainability Reporting Standards (ESRS).
EFRAG guidance, published in late May 2024 to address the most challenging aspects of CSRD/ESRS, clarified several disclosure requirements regarding the DMA. This necessitates a reassessment of the work done in (early) 2023 to further develop and refine the methods FS organisations used to perform their first DMA.
Based on the guidance and our experience, here are some important considerations for FS organisations implementing DMAs:
- Reassessing the DMA
Performing a DMA is time-consuming, requiring both capacity and specialist skills often concentrated within a small team. The EFRAG guidance recommends revisiting the DMA annually unless business conditions remain unchanged. Given the rapid evolution of DMA methods and sustainability knowledge, we believe annual updates are essential in these initial years.
To ensure continuity, it’s crucial to document the DMA process comprehensively, even beyond what’s required for limited assurance, considering the knowledge resides with a small group of specialists.
- Prioritising impacts, risks and opportunities (IROs)
IROs are assessed to define material sustainability matters for the organisation. We’ve observed that organisations already reporting in accordance with Global Reporting Initiative (GRI) requirements have a head start. They’re accustomed to assessing the impacts of sustainability matters rather than the matters themselves.
While both GRI and CSRD are relevant, it’s important to note that IROs can be prioritised for internal management purposes but not for reporting purposes.
- Stakeholder engagement
The guidance allows for proxies and doesn’t necessitate stakeholder involvement in every DMA step, but a thorough and efficient approach is still vital. Nature, as a silent stakeholder, requires special consideration. Scientific information is necessary to represent nature’s interests. Choosing metrics and setting targets for nature-related issues is complex, and information for stakeholder involvement will develop over time and needs close monitoring for good practices.
- Labelling and defining sustainability matters
FS-organisations have likely performed materiality assessments in previous years. This means labelling and defining sustainability matters will change to align with CSRD terminology. For comparability, a ‘big bang’ approach in the 2024 report is recommended, rather than using transformation tables to explain how previous labels connect to CSRD definitions.
- Own operations and limited assurance
We’ve observed that for some financial institutions, sustainability matters related to their own operations are not material. However, annual reports often contain significant information on these matters. While much of this information and related processes may not have been subject to limited assurance in the past, they will be in future. Therefore, documentation for obtaining and processing data related to own operations needs extra attention.
The EFRAG guidance provides clarity but also raises points for further discussion. We’re happy to share our insights and engage in conversations to help you achieve our shared goal: making a positive impact.
Want to learn more?
If you’d like to learn more about CSRD implementation, please get in touch with Jeffrey Colin at [email protected].
Jeffrey Colin is an Associate Partner of the Consulting Practice at Valcon
