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Beyond compliance: Creating value from double materiality
- Post Date
- 25 April 2024
- Read Time
- 6 minutes
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On April 23rd, Finch & Beak, part of SLR, hosted a webinar on creating value from double materiality, focusing on leveraging double materiality assessments to drive strategic value beyond mere compliance. Valeria Calvas outlined how to strategically utilise double materiality, emphasising the importance of assessing the value chain, stakeholder engagement and executive buy-in. Simon Gobert from dsm-firmenich shared insights on navigating double materiality during organisational transformation, highlighting the steps his company took during its recent assessment and the way forward towards CSRD compliance.
In the first presentation, Valeria Calvas underscored the critical importance of adopting a comprehensive approach in the double materiality assessment (DMA). By considering the entire value chain and engaging stakeholders proactively, organisations can unlock new opportunities to drive sustainable practices and make tangible progress towards their ESG goals.
Mapping the value chain for ESG opportunities
Mapping the different steps of the value chain is a crucial first step in the double materiality assessment to understand where value is created, to pinpoint initial impacts, risks and opportunities (IROs), and to identify the most relevant affected stakeholders in the upstream, direct and downstream operations.
Engaging and identifying stakeholders
Designing the stakeholder engagement process, such as through interviews, workshops, or panels, emerges as a cornerstone in the DMA process and will ultimately validate the IROs and determine the material topics. Internal stakeholders including senior management, topic owners, and a broader employee base are instrumental in driving awareness and action on ESG issues within the organisation. External stakeholders should be engaged through collaborative processes that aim to forge partnerships and insights can be used to align expectations effectively.
Assessing impacts, risks and opportunities (IROs)
After having shortlisted the potential material topics, the Impacts, Risk and Opportunities (IROs) can be assessed by parameters and thresholds to determine priority impacts in your impact materiality assessment:
- Financial materiality involves evaluating risks and opportunities based on potential negative and positive financial impacts in the short-, medium-, and long-term. The ESRS guidance categorises impact by magnitude and likelihood, ranging from insignificant to catastrophic, and from very unlikely to almost certain.
- Impact materiality involves evaluating the actual and potential impacts on environment and society in terms of scope and scale. The recommended evaluation ranges from no impact to absolute impact in scale, and from local to global in scope. Irremediability is taken in account for both actual and potential aspects of the negative impact, while likelihood is factored into potential negative and positive impacts.
Actionability of DMA results
After validating the IROs and defining the material topics, the most material risks can be mapped against the company’s risk framework (ERM) and the risks, impacts and opportunities should be addressed in the sustainability strategy or, ideally, the wider business strategy. This way, companies can further explore strategic opportunities related to their material ESG topics.
dsm-firmenich's approach to double materiality and how to move forward
dsm-firmenich is the result of the merger between Royal DSM and Firmenich which was completed in 2023. As innovators in nutrition, health and beauty, dsm-firmenich reinvents, manufactures and combines nutrients, flavours and fragrances for the world’s growing population to thrive. With 30 years of reporting expertise, dsm-firmenich conducts its annual reporting aligning with the latest standards. In 2023, the newly formed organisation conducted its first double materiality assessment, implementing a structured process consisting of 5 steps:
- Defining the long list:
This foundational step started with desk research into various frameworks, legislation, ratings, and trend reports, complemented by peer reviews and internal interviews to capture a wide range of insights and perspectives. - Establishing materiality identification:
After defining the longlist, the next step involved selecting potential material topics by applying materiality design principles to align identified topics as per ESRS’s topical standards, including sub-topics, and sub-sub-topics. - Impact assessment:
External stakeholder interviews, internal regional interviews, business unit and group workshops, as well as desk research on additional external stakeholders, were conducted to assess the impact, risks and opportunities related to the identified topics. - Visualisation and analysis:
Stakeholder groups were prioritised, and raw data from the activities in step 3 and 4 were analysed based on ESRS guidelines. Then a comparison was made between the materiality analysis and the Risk Assessment results to develop materiality matrices on both group and business unit level. - Validation and Approval:
The final step entailed validating the findings with senior leadership and the Board of Directors. Ultimately, approval by the CEO was sought to endorse the outcomes of the assessment.
Looking ahead, dsm-firmenich plans to enhance its sustainability reporting by annually updating its double materiality assessment. The company aims to focus on reassessing material topics to concentrate efforts on driving value and sustainability. It will streamline its framework by removing 'enabling' topics and ensuring clearer definitions, aligning with ESRS (sub-sub-)topics for transparency. dsm-firmenich establishes strong governance structures, allocates resources for DMA activities, prioritises closing gaps, addressing risks, and seizing opportunities to boost resilience and performance. Ultimately the company embraces voluntary disclosures and key DMA themes to showcase transparency and accountability in its sustainability initiatives.
What we can do to support you with your organisation’s double materiality assessment
Our vision is to create value beyond reporting. We support companies in preparing to comply with upcoming regulation, and moreover to get strategic insights out of your double materiality assessment. If your organisation requires support on its double materiality journey, please get in touch to discuss how we can help you.
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