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Double Materiality Analysis and Emission Accounting – what do you need to know?

Eveliina Heikkala

Two doors

In the context of Corporate Sustainability reporting, there is much discussion about double materiality. This concept originates from the sustainability reporting standards (ESRS) set by EFRAG, which define the requirements for CSRD reporting. One such requirement is the identification of key responsibility issues through double materiality analysis. What does double materiality mean, and how is it related to corporate emission accounting?

The purpose of materiality analysis is to identify the most important aspects of responsibility for the company’s operations and its stakeholders. The results of the analysis help the company to find the right focus for its responsibility work.

Double materiality is one method to assess materiality. It examines materiality from two perspectives:

  • Inside-out, i.e., the impact of the company on the environment and society.
  • Outside-in, i.e., how the environment and society affect the company’s operations and what economic risks and opportunities are associated with the company.

A responsibility issue must be reported if it is identified as material from either the inside-out or outside-in perspective or both.

CSRD, ESRS, and Double Materiality

With the EU’s CSRD, the concept of double materiality becomes a part of the responsibility work for more and more companies. CSRD reports must be constructed according to ESRS standards, and conducting a double materiality analysis is a mandatory part of ESRS reporting.

There are 12 ESRS standards divided into three categories: cross-sectoral, topic-specific, and sector-specific standards. Through double materiality analysis, the relevant ESRS standards that the company must report on are identified, and it also determines what can be excluded from the reporting.

Cross-sectoral standards apply to all companies and include general requirements for conducting sustainability reporting. Topic-specific standards are divided into three dimensions: Environmental, Social, Governance (often abbreviated as ESG).

Sector-specific standards are still under development and are expected to be published in 2026.

ESRS standards

Important considerations in conducting Double Materiality Analysis

Legislation and standards do not specify the method for conducting double materiality analysis. However, the process must include essential steps for identifying and analyzing key responsibility themes. Moreover, the evaluation of double materiality must rely on reliable data, and the entire process must be documented transparently.

First, the most significant responsibility themes for the company must be identified, using:

  • internal data; such as accounting records and previous ESG reports &
  • external data; such as stakeholder interviews and relevant industry reports.

Once the most significant responsibility themes have been identified, it becomes necessary to quantify their impacts as well as the associated economic risks and opportunities using both inside-out and outside-in approaches.

A third party must verify the double materiality assessment, and its results must be included in the sustainability report.

The assessment of double materiality is a broad and multidimensional process that requires time and resources. It cannot be conducted by just a few company executives based solely on their perspectives. Instead, identified stakeholders within the value chain, such as customers or partners, should be involved in the process.

As reporting requirements extend to new areas, such as climate change as well as water and biodiversity impacts, it is important to ensure that the process is staffed with adequate expertise and that necessary data points and stakeholders are identified well in advance. A carefully conducted materiality assessment forms the basis of a reliable CSRD report.

Double Materiality Analysis and Emission Accounting

Double materiality analysis also links to the accounting of a company’s greenhouse gas emissions, as the first environmental topic standard (ESRS-E1) concerns climate change. According to the standard, a company must report:

  • the emissions generated by its operations
  • monitor emission development
  • set climate targets,
  • and describe practices for reducing emissions.

Emissions should be calculated according to GHG Protocol calculation guidelines.

According to ESRS E1, companies must calculate emissions for Scopes 1 and 2, as well as those Scope 3 categories identified as significant for their operations. Double materiality analysis helps identify these significant emission sources.

Additionally, the company’s CSRD report must detail how the company has identified its significant impacts, risks, and opportunities related to climate change through double materiality assessment. The report should specify:

  • what data was used in the assessment
  • what climate change scenarios the company utilized
  • and how potential current and future emission sources were identified.

The ESRS-E1 standard also defines what other emission accounting results must be reported in addition to Scope 1-3 calculation results. These include, for example:

  • energy and emission intensities relative to revenue
  • the amount of carbon stored or sequestered by the company
  • and the consumption of fossil, renewable, and nuclear energy.

Start early and prepare effectively

The dual materiality required for CSRD reporting adds to the workload for many companies. However, it also clarifies the focus of responsibility work more effectively and provides tools for developing other areas of business operations. At Biocode, we help companies identify the significant emission sources that should be included in the CSRD-compliant report.

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