Dual materiality, as part of the Green Deal, is an extension to the CSRD reporting requirement, which involves companies taking two perspectives on sustainability issues and reporting obligations.
Definition:
Double materiality
As part of the Green Deal, dual materiality is an extension of the CSRD reporting obligation, which requires companies to adopt two perspectives on sustainability issues and reporting obligations. The aim is to specifically identify the relevant topics from the major ones and to prioritize them accordingly.
What does materiality mean?
The term is often used by preparers, users and auditors of financial information. What is meant by this is that the audit objectives are pursued according to higher importance and significance for the environment, society and the company itself. That is, the depth of information provided depends on the materiality of the topic. Thus, the company should focus on adjusting the depth and breadth of the information so that the stakeholder is aware of the situation, performance and development.
Dual materiality is divided into the following:
1. outside-in
Companies are expected to present the main risks and how their product or service will be affected if the sustainability factor is damaged. They are expected to report on how these risks come about and can be mitigated. These can be classified as short, medium or long term risks. The information should be explained in the non-financial report.
The perspective is future-oriented and thus allows to clearly follow the development of the company.
2. inside-out
This view describes the inverse relation, namely the impact of the activities e.g. products or services of the companies on the sustainability factors. It should be reported by the impacts, risks and measures related to ESG, i.e. Environment, Social and Governance, . At the least, environmental, social and labor rights, human rights and anti-corruption mechanisms should be presented.
