Materiality tests flag average of 80 topics for German firms
Research on practical application of ESRS shows ‘affected communities’ is issue most likely to be omitted
German firms identify 80 material impacts, risks and opportunities, on average, as part of complying with the EU’s Corporate Sustainability Reporting Directive (CSRD).
A trade association representing the country’s large listed companies and capital markets participants spoke with a small group of its members to find out how they were getting to grips with the standards underpinning the CSRD.
The 35 participants come from 20 firms including TUI, BASF, Siemens and Adidas, Merck and Heidelberger Druckmaschinen.
Deutsches Aktieninstitut published an English translation of its findings this week, along with explanations and definitions of key components of the Directive.
One area discussed in the paper is ‘materiality assessments’ – the requirement to identify which environmental and social issues are significant enough to a company to warrant additional public disclosures.
Completing such an assessment is one of the first steps in complying with CSRD.
“Most of the participating companies took three to six months to carry out the initial materiality assessment in accordance with the CSRD (before coordination with the auditor),” noted the report.
Under the EU’s rules, a sustainability topic is material if it could hurt or strengthen a company’s bottom line, or if its business activities have a notable impact on the issue.
“An average of 80 impacts, risks and opportunities were identified as material for the companies involved,” said Deutsches Aktieninstitut, adding that around 25 of those were deemed financially material, with 55 seen as having a material impact.
Nearly 45% of respondents said they hadn’t omitted any of the topics namechecked in the European Sustainability Reporting Standards.
Roughly the same proportion said ‘affected communities’ had been “completely omitted during the materiality assessment”, and more than a quarter said pollution was immaterial to the business.
Climate change and the company’s own workforce were considered material to all participants.
Business conduct and workers within the supply chain were also high priorities.
Departmental responsibility
“Due to the comprehensive nature of the environmental, social and governance dimensions, conducting a materiality assessment poses a considerable challenge for companies,” said Deutsches Aktieninstitut.
It noted that “as a rule, there are no organisational structures that allow all three dimensions to be covered by one department” within a company.
“If a sustainability department exists, it is recommended to assign [it] with the responsibility for the materiality assessment since it requires a broader understanding of the concept of sustainability within the company,” the authors of the report suggest.
“Alternatively, the process can also be managed by the Legal or Finance Department, whereby coordination can be carried out by the Investor Relations Department, but theoretically also by the Enterprise Risk Management team.”
To read the full report, see here.