In this series, we explore several under-the-radar EU Corporate Sustainability Reporting Directive resources published over the summer. U.S.-based multinationals will find these resources helpful as they prepare for CSRD compliance.
The last post in this series discussed 10 Waypoints for CSRD – double materiality, published in July by the Dutch Authority for the Financial Markets. For that post, see here.
Insights from a German academic study
In this fourth and final post in the series, we discuss findings from a study entitledCSRD Materiality Analysis – Early Adopter Insights, published by Prof. Dr. Maximilian Müller and Nina Valkyser at the University of Cologne in Germany.
The study examines early CSRD adoption by the STOXX Europe 600 for fiscal 2023. The STOXX Europe 600 is a stock index of 600 European large-, mid- and small-cap companies from 17 countries. Although the study is limited to the STOXX 600, it provides general compliance insights for all companies preparing for CSRD reporting.
The study sample consists of 48 companies in the STOXX Europe 600 that either disclosed a sustainability statement based on the European Sustainability Reporting Standards adopted pursuant to the CSRD (5 companies) or that disclosed a double materiality assessment in accordance with the ESRS (43 companies). The companies came from a range of sectors represented in the STOXX 600, although they skewed toward smaller companies and had a strong Scandinavian representation.
The report issued focuses on two principal areas: topic standards identified as material and benchmarking of materiality assessments, as further discussed below. We encourage taking a look at the more granular findings in the report (see the link above).
Materiality of Topic Standards
- On average, companies identified components of seven ESRS as material.
- All of the companies indicated that ESRS E1 (Climate change) and ESRS S1 (Own workforce) are material.
- In descending order, in excess of a majority of companies identified as material G1 (Business conduct), S2 (Workers in the value chain), E5 (Resource use and circular economy), S4 (Consumers and end-users) and E4 (Biodiversity and ecosystems).
- A majority of the companies identified entity-specific topics, most frequently cybersecurity (15).
- The ten most frequently mentioned material ESRS sub-topics were, in descending order, Working conditions (S1), Climate change mitigation (E1), Equal treatment and opportunities for all (S1), Climate change adaptation (E1), Energy (E1), Working conditions (S2), Water (E3), Corruption and bribery (G1), Waste (E5) and Corporate culture (G1). The most frequently mentioned sub-topic had 31 mentions.
- The ten most frequently mentioned material sub-sub-topics were, in descending order, Health and safety (S1), Training and skills development (S1), Gender equality and equal pay for work of equal value (S1), Diversity (S1), Employment and inclusion of persons with disabilities (S1), Water consumption (E3), Measures against violence and harassment in the workplace (S1), Privacy (S4), Health and safety (S2) and Water withdrawals (E3). The most referenced sub-sub-topic had 15 mentions. Many companies did not specify sub-sub-topics.
Materiality Assessment Benchmarking
The study looked at 13 dimensions across five areas of the materiality assessment to benchmark common practice vs. best practice.
- The study concluded that none of the early adopters had a materiality assessment that was close to best practice, but indicated many companies are on their way. However, one area where it was noted that common and best practice converged was the inclusion of both internal and external stakeholders in the materiality assessment (80% of companies). Most companies conducted interviews (27), surveys (25) and/or workshops (14) to engage with stakeholders. Many companies also conducted desk research (13) and competitor analyses (13).
- Of the sample, 33 companies used the list of topics from ESRS 1, AR 16 for their long list of sustainability topics, from which the material topics were later determined. The report indicated that identification of impacts, risks and opportunities (IROs) could benefit from a clearer classification along the value chain, if data is available (12 companies did so).
- According to the report, assessing and determining material IROs with quantitative data did not currently appear to be feasible. Two companies used a quantitative approach for assessing impact and four did so for financial materiality. Many of the companies created a scale and then had selected stakeholders rate the various materiality topics on the long list using the scale. The report indicates that, even though this procedure involved a form of quantification, it was closer to a qualitative approach, since the topics were not assessed on the basis of clearly measurable figures, but rather on the basis of stakeholder opinions and assessments.
- Most companies (35) did not indicate how they derived their materiality thresholds. Of those that did, ten referenced their enterprise risk management system/process.
- The most common way to present results was a matrix alone (23), often with the two dimensions of impact and financial materiality. Four companies used a matrix and a table that provided additional detail. A majority of the companies (27) used the topics from ESRS 1 AR16 when presenting their results.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
