From January 2024, large listed companies must comply with the Corporate Sustainability Reporting Directive (CSRD). This directive focuses on understanding impacts, risks, and opportunities—key elements of the required reporting. A crucial part of this process is the Double Materiality Assessment (DMA), which involves examining the relevant relationships in the Value Chain (VC), both upstream and downstream. For financial services (FS) organisations, this can be particularly tricky, as their impacts are often linked to their VC relationships. Identifying the right partners and developing ways to assess them is essential.
Reassessing the value chain before a DMA
As methods for identifying relevant parts of the value chain and knowledge about sustainability issues evolve rapidly, it’s important to reassess your value chain before conducting a DMA. Market practices and industry guidance, such as EFRAG’s recommendations, offer valuable input for this process. Here, we highlight key aspects of the EFRAG guidance to consider for identifying relevant parts of your value chain when re-evaluating your Double Materiality Assessment.
Defining the value chain boundaries
Including VC information in sustainability reports means considering all relationships that entities within your organisation’s consolidation perimeter have with their VC partners, even beyond the first tier. FS organisations need to set clear boundaries on what’s included in the VC and the methods and data used to identify these relationships. You can’t exclude relationships with subsidiaries, associates, and joint ventures without solid data, methods, and reasoning.
Handling relationships without control or significant influence
There are no specific requirements on how to measure impacts related to entities where you have investments but no joint control or significant influence. However, guidance does offer examples of how to handle these situations. FS organisations may have connections with entities they don’t control or influence directly, yet these relationships can still result in a material impact, risk, or opportunity. Lack of control isn’t a valid reason to exclude a relationship from the VC assessment.
Considering life cycle assessment
Financial institutions should consider that their counterparties’ environmental standards often use life cycle assessment (LCA), when assessing materiality. This means a sustainability issue that wasn’t relevant to an industry before might now become significant. If an FS organisation is involved in such an industry, the sustainability issue could become relevant.
Disclosing value chain data
Organisations should disclose where in their business model—across operations and the value chain—material impacts, risks, and opportunities are concentrated. It’s important to provide decision-useful information, not just lots of data that adds little value. Engage with stakeholders to ensure your disclosures meet the criteria of decision-useful information in the VC context.
Want to learn more?
If you’d like to learn more about CSRD implementation, please email me at [email protected], and I’ll be in touch right away.
