EU’s double-materiality assessments ‘help rather than hinder’ Swedish firms
Eight listed companies have shared their reflections on conducting the evaluations under CSRD
Companies in Sweden say the EU’s requirement to conduct a double materiality assessment (DMA) has been beneficial for their organisations.
An academic study conducted by Södertörn University’s Elias Svensson concluded that the requirement to undertake a DMA under new European sustainability reporting rules had multiple advantages for listed firms.
Under the Corporate Sustainability Reporting Directive (CSRD), a company must conduct a DMA to identify the key environmental and social issues on which it should provide information to the market. This includes issues that pose risks to the company’s ability to continue to conduct its business activities, and those on which the its business activities have a notable impact.
The requirement has caused some confusion, in part because EU doesn’t provide detailed guidance, and firms are given discretion to decide the threshold for what qualifies as ‘material’.
Svensson interviewed representatives from eight unnamed Swedish listed companies (see table) and concluded that, ultimately, “all participants felt that the DMA helped their organisation rather than hindered them”.
All but one of the companies used a consulting firm to help conduct their DMA. The firm that chose to undertake the process entirely in-house did so because its head of sustainability had “previously held a senior position within sustainability reporting at a consulting firm before joining”, so had expertise in the field.
The quickest turnaround on a DMA was three months (for the two companies in Metals & Mining and Medical Equipment), but most of the firms took between five and eight months to complete one.
“None of the participants felt surprised by the output that had emerged,” noted Svensson. “However, all participants admitted that they had discovered new areas of materiality which they will be required to report on in the future that they had not previously addressed.”
Almost all those interviewed said CSRD “shed light on existing risks and opportunities that the company had already noted but had chosen not to report on for various reasons”.
Evaluating value chains
For the head of sustainability at one consumer services firm, “the biggest eye-opener” was on suppliers.
“We know we depend on suppliers, as all companies do, but it became even clearer that we’re not just dependent on them to deliver things to us, but we’re dependent on them in the sense that how they run their businesses can have or may have an effect on us,” they told Svensson. “It can be a risk for us.”
Two of the companies were advised by their auditors to “narrow the scope of material topics within their value chain” because the DMA had become “a bit too extensive”.
“The auditors believed that the companies were assuming too much responsibility and influence in their value chain, which would be difficult for the auditing entity to confirm,” the study said.
Both followed the advice “and chosen to tighten their output to ensure that their report passes scrutiny”.
The head of sustainability at one carmaker suggested Swedish companies were likely to “overreport” compared with those in other jurisdictions, because of national focus on sustainability.
Benefits
As well as shedding light on risks and impacts, the interviewees observed a number of other benefits from conducting a DMA. This included the development of a “common corporate language”, which made it easier to connect colleagues across commercial and sustainability functions within the organisation.
A sustainability controller at one large real estate firm “noticed an increased focus on sustainability within internal and external stakeholder dialogues” as a result of the DMA’s requirement to consider financial materiality in the same process as impact.
Sweden has transposed the CSRD into national law and it will take effect from July 1st.