With the Corporate Sustainability Reporting Directive and European Sustainability Reporting Standards set to take effect in 2023, the sustainability reporting landscape is undergoing major development. On the 21st of June 2022, Finch & Beak organized an ESG Acceleration Webinar on the topic of materiality and the recent developments in the reporting landscape. Guest speaker Virginie Delcroix, Vice-President Sustainable Development at Arkema shed light on the materiality process followed by the company. On behalf of Finch & Beak, Director Consulting Bas Nuijten shared the highlighted changes in ESG reporting in combination with practical implications for companies. This article summarizes the highlights of the session and includes a downloadable checklist with 3 materiality activation tips.
The connection between the different standards
On a global level, the International Sustainability Standards Board (ISSB), established by the IFRS, is set to develop global standards on sustainability reporting. On a European level, this is done through the Corporate Sustainability Reporting Directive (CSRD), the successor of the Non-Financial Reporting Directive.
As part of the CSRD, the European Sustainability Reporting Standards provide guidance to report in line with the CSRD. These standards are provided by the European Financial Reporting Advisory Group (EFRAG), take a sector-agnostic approach and contains 13 different ESG indicators. On the environmental side, the alignment with the TCFD framework is returning, emphasizing the importance of the material issue of climate change. On the social side, indicators regarding the company’s own workforce, as well as workforce in the value chain are stressed.
A period of public consultation is currently open and will run until 8th of August. The estimation is that by October/November 2022, the European Commission will adopt the first set of reporting standards. Companies will be required to publish according to the ESRS for the first time in 2024, based on the fiscal year 2023. In addition, the ISSB and CSRD are also seeking alignment in both reporting standards. However, up to now no updates on this have been made public yet.
How to overcome challenges and increase the quality of your ESG program
Following the proposed standards, and updates on the reporting landscape, a company can overcome these challenges by increasing the quality of its ESG program through the following:
- Designing your matrix including double materiality: The new way forward when it comes to materiality is the application of double materiality. Companies are required to investigate how ESG topics are affecting their business (financial materiality), but also how the company itself is impacting the ESG topics (impact materiality). While looking at impact, the views, feedbacks, and perspectives from stakeholders are not to be neglected. Arkema is a good example of where double materiality was assessed in a workshop session including the company’s different geographical regions.
- Value chains become competitive on handprint and footprint: The focus of materiality shifts beyond a company’s own operations, towards the entire value chain. It becomes essential for companies to identify risks and opportunities beyond their own company boundaries by assessing the handprint and footprint of the value chain. Analyzing which assets are at highest risk (e.g. fleet composition of a company’s logistics service line), as well as which ESG topics are most relevant in the value chain (e.g. scope 3 emissions, and human rights), will help organizations to integrate a value chain perspective when it comes to determining materiality.
- Future frontrunners are companies capable of collecting & measuring the right ESG value chain data: One of the biggest challenges is to collect and measure ESG data, especially on a value chain level. In a complex value chain, like those in the chemical distribution sector, with numerous local actors, getting the right data in is one of the biggest challenges. Assessment can take place on three levels:
- Full assessment: ensuring all companies are included in the assessment. However, this approach is costly and timely.
- Partial assessment: covering the biggest suppliers based on percentage of spend, with the rest being estimated based on e.g. extrapolation.
- Value chain modelling: drafting a picture of a company’s value chain based on sample data. This leads into processes of e.g. impact valuation when assessing scope 3, or potentially into scenario development for climate related issues when speaking about TCFD.
Materiality in practice: lessons from Arkema's recent materiality process
On how to put everything into practice, Virginie Delcroix shared more about Arkema’s materiality process. The company focused on identifying local material issues and ensured they capturie the views of Arkema’s different geographical regions. In addition, at the end of the process, a gap analysis was conducted with Arkema’s existing CSR policy, which provided input to further develop Arkema’s approach towards ESG and sustainability.
How to accelerate your materiality assessment
Finch & Beak’s Nikkie Vinke wrapped up the session by emphasizing valuable insights from the discussion, and suggested three helpful tips to consider when accelerating ESG through the new ESG reporting landscape. You can find the tips in the downloadable document at the top of the page.
Materiality support for your organization
At Finch & Beak, providing organizations with materiality support is part of our mission to accelerate sustainability. Specifically with regards to materiality we assist companies in the following ways:
- Materiality Assessments including double materiality
- Impact Measurement and Valuation, potentially including TCFD
- Activation of Materiality through business case development
If your organization requires support on its materiality journey, reach out to Gijs-Jan Groeneveld, at Gijs-Jan@finchandbeak.com or call +31 6 28 02 18 80 to discuss how Finch & Beak can help you.
Photo by Miroslav Volek on Flickr