The adoption of Double Materiality Assessments (DMA) has grown rapidly, becoming standard practice for sustainability reporting around the globe. Organizations that have already conducted a DMA, whether as part of CSRD/ESRS reporting or with a hybrid GRI-ISSB approach, understand the significant effort required in the initial phase. The first DMA can be a substantial project, frequently supported by external advisory services. Following this assessment, companies are typically left with an extensive amount of data and documentation, which may be difficult to leverage effectively in the future.
As organizations move into their second year of sustainability reporting, they often ask several key questions:
What’s the best approach for the second DMA?
Do we need to re-do the entire process?
How can we make use of the data and documentation accumulated in year one?
What are the best practices for a DMA in the second year?
A complete re-do of the Double Materiality Assessment (DMA) is not necessary. Year two builds upon the foundation established in year one, focusing on refining and updating key aspects. Instead of starting from scratch, year two offers an opportunity to revisit and enhance the assessment, particularly through three core phases.
In this article, we’ll dive into the critical steps and best practices for updating your Double Materiality Assessment (DMA) in year two and beyond, focusing on streamlining the process without sacrificing quality or compliance.
Year Two DMA: 3 Core Phases
1. Prioritize Change: Focus on What’s New or Different
Rather than redoing the whole process, year two should be about focusing on the changes since the first assessment. This is where Delta Analysis plays a key role. Delta analysis is a method used to identify changes between two data sets, such as the changes in your business operations, market dynamics, or regulatory landscape. By comparing the results from year one with the current year, you can pinpoint which material areas need attention.
Critical Areas to Assess:
Shifts in your business: Have there been any acquisitions, new markets, products, or changes in suppliers?
Regulatory updates: Any new CRSD/ESRS standards or local laws to consider?
Stakeholder feedback: Are there any shifts in investor ESG priorities or customer concerns?
Peer assessments: What are your competitors doing? Can you identify areas for improvement?
By analyzing these changes, you can create a targeted update that addresses gaps, rather than revisiting the entire DMA process.
2. Refresh and Adjust: Update Based on Identified Changes
Once you've identified the key changes, the next step is to refresh your assessment accordingly. Update value chain mapping to ensure that new business activities (e.g., acquisitions, market expansions) are reflected and emphasize environmental and social risk hotspots rather than diving into excessive detail.
Key adjustments might include:
Addressing year one gaps: For example, if there were shortcomings in stakeholder engagement or missed dependencies, now’s the time to correct them.
Refining the IRO (Impacts, Risks, and Opportunities) register: Ensure that IROs are specific, measurable, and aligned with any new developments or regulatory changes.
Targeted stakeholder engagement: Engage with new stakeholders, particularly in areas where significant changes have occurred, like new suppliers or communities impacted by your operations.
3. Document and Report: Ensure Alignment with Standards
Finally, you’ll need to update your reporting to reflect the assessment updates. This involves updating your ESRS/CSRD templates and documenting all changes in a change log, which is critical for assurance purposes. Ensure that all new or revised IROs align with the relevant disclosure requirements and data points.
Best practices include:
Cross-checking with ESRS: Ensure that all new IROs are in line with the latest reporting standards.
Reusing documentation: Leverage templates and systems from the first year to save time and avoid unnecessary duplication.
Documenting Change: Update your change logs by meticulously recording all adjustments to processes, procedures, and policies, to provide transparency and accountability in the development process, easily track changes, and assist in the efficient planning and execution of future projects.
Best Practices for a Year Two DMA
By prioritizing the changes and gaps identified in year one, companies can save significant time and effort in their second DMA. Some studies suggest that, by focusing on what’s new or different, organizations can reduce the time and resources required for year two by up to 50-70%.
Remember these best practices to make your second DMA process more efficient:
Automate data collection: Use sustainability software to integrate data collection and monitor IRO changes throughout the year.
Optimize stakeholder engagement: Focus on high-impact groups and leverage existing feedback channels.
Strengthen governance: Assign a DMA owner to oversee the process and maintain clear documentation of decisions and updates.
Benchmark against peers: Keep an eye on what your competitors are doing and stay informed about any legislative updates that may affect your assessment.
Conclusion
The second year of the Double Materiality Assessment process is about refining and enhancing your processes rather than starting from scratch. By focusing on the changes in your business and leveraging insights from year one, you can streamline the process, reduce costs, and ensure continued compliance with evolving regulations like the CSRD. Embracing the core principles of prioritizing change, updating based on identified gaps, and documenting all revisions, will make your second-year DMA efficient and effective.
Adopting these best practices will ensure that your organization remains ahead of the curve in sustainability reporting while minimizing the time and effort required for future assessments.
