The double materiality analysis in accordance with the CSRD lays the foundation for the management and strategic development of sustainability work 

Climate change, biodiversity, circular economy, and employees are highlighted in Finnish companies’ CSRD double materiality analyses. The double materiality materiality analysis forms the basis for the company’s effective sustainability work and is the basis for reporting in accordance with the CSRD. Through the analysis, the company identifies and selects sustainability themes that are essential for its own operations, which can be utilised both in the development of strategic business operations and in compliance reporting. In the process, sustainability themes are evaluated from two perspectives: the positive and negative impacts of the company’s operations on people and the environment, and the risks and opportunities caused by a specific sustainability theme to the company’s business. A carefully conducted materiality analysis helps to focus the company’s sustainability work on those areas that have the greatest impact on the company’s financial success, people, and the environment.

During the past 12 months, sustainable consultants have carried out numerous materiality analyses in accordance with the double materiality principle for companies operating in various industries, such as the energy industry, heavy industry, trade, media, and banking sectors. This includes both listed companies for which reporting under the CSRD will be mandatory next year for 2024 data and companies preparing to report according to the CSRD for the first time in 2026 based on data from the previous year. Based on the results, the average number of material themes in different companies is 6 (5.6) and the most commonly defined themes are climate change, biodiversity and ecosystems, circular economy, own employees, and employees in the value chain. These themes have been defined as essential by more than 65% of the companies Gaia encounters. 

The emphasis on environmental themes as essential themes may not come as a surprise to anyone, but it is interesting to note that, in addition to climate issues, themes related to biodiversity and circular economy are clearly on the rise. The fact that social themes have become essential in many companies also reflects the growth of understanding of these themes. It also reflects one of CSRD’s goals to broaden the concept of sustainability work and to provide companies with a better understanding of their impact, operational risks, and opportunities throughout the value chain. The examination of the value chain also brings the themes covered by social responsibility within the scope of responsibility work more extensively and precisely than before. 

Climate change

Climate change is among the most relevant themes for almost all companies. Many have been doing climate work for several years. However, the scope of the requirements may surprise even a more experienced organization, as quantifying emissions (which is also still under development for many organizations, especially in terms of emissions from the value chain) is only the beginning. 

CSRD’s requirements emphasise a more comprehensive management of climate impacts, such as: 

• understand climate risks and opportunities throughout the business and its value chains 

• strengthen the ambition of the organisation’s climate goals in line with the 1.5-degree target of the Paris Agreement 

• sets out how these objectives will be financed; 

• take into account, for example, locked-in emissions 

These guide companies to extend their gaze further into the future than has been customary until now. 

Fortunately, the increasing requirements have been able to build work by combining and utilising existing frameworks, whereas now CSRD requirements can be met on the basis of standards already familiar to many (e.g. emissions calculations according to the GHG Protocol, targets according to SBTi criteria, and climate risk analysis according to TCFD and/or EU taxonomy help to meet the requirements). This will also tie these many areas together more closely than before, which will make it easier to promote practical work. 

Biodiversity

The essential nature of biodiversity and ecosystems for many businesses is obvious. Dependence on a functioning nature and the commodities it provides is the cornerstone of many businesses. Disturbances in nature’s operations thus pose direct risks to business continuity and profitability. In some situations, natural impacts and risks may be formed indirectly through longer chains of effects, which may make identifying them more challenging. 

Companies have been carrying out various environmental activities for a long time. It is now necessary to form a systematic picture of them and to identify their link with reporting requirements under the CSRD. The wide range of reporting requirements often poses additional challenges: at the same time, quantitative data according to detailed reportable indicators must be examined and, on the other hand, the processes of setting goals for nature work and links to business operations must be understood and described. 

Companies reporting on the biodiversity theme based on dual materiality should be better informed about how their strategy and business models relate to compliance with planetary boundaries, the vision and objectives of the Kunming-Montreal Global Biodiversity Framework and the EU Biodiversity Strategy. In addition, the EU Birds and Habitats Directives and the Marine Strategy Framework Directive must also be considered. The company’s biodiversity strategy, which has been systematically prepared and linked to business operations, and SBT for Nature and TNFD, which have been expanded from climate work, are examples of tools that can be used to respond to CSRD’s most strategic requirements. 

Circular economy

The emergence of the circular economy as an essential theme for many companies is particularly interesting. One of the key objectives of the CSRD is to accelerate the transition from linear business models to a circular economy. The circular economy is often a way to manage and reduce negative impacts that are reported under other environmental themes. 

Reporting in accordance with the CSRD requires, among other things, the company to familiarise itself with its own material flows from the perspective of material efficiency. In addition to quantitative indicators, this theme should also describe more strategic goals and means: How will the company implement the transition from linear to a circular economy, i.e. move away from the use of virgin materials? How does the company sustainably source and use renewable materials? 

Climate change, biodiversity and the circular economy are all closely linked. Climate change is a threat to biodiversity, and biodiversity loss may further accelerate climate change. The circular economy can contribute to mitigating climate change through waste reduction and improved energy efficiency, and sustainable resource use and resource efficiency prevent biodiversity loss. CSRD provides companies with common indicators for monitoring these issues, which enable not only goal-oriented development of their own operations but also comparison with other companies in the same industry. By promoting these themes, we can not only influence the development of our environment, but also strengthen the role of responsibility in the strategic development of the company’s business.

Julia Illman, Sustainability Consultant,  julia.illman@sweco.fi
Piia Pessala, Sustainability Consultant, piia.pessala@sweco.fi
Leni Valsta, Sustainability Consultant, leni.valsta@sweco.fi