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Navigating CSRD: Simplifying Double Materiality Assessments for SMEs / Consultants / Trainers
Do you aim to understand how your business or investments impact the environment and society? And how environmental and social issues might impact your business or investments? You have come to the right place!
Simplified way of Solving CSRD Puzzle
Instant Double Materiality Pre-Assessment
1. Impact Drivers - how does your operations might affect people and nature?
These are the activities or actions that a company undertakes which can have a potential impact on the environment, society, or economy. Examples include production processes, waste disposal, and energy consumption.
2. Dependencies on Ecosystem Services - what natural resources or services the company relies on?
This refers to the reliance of a company on natural ecosystems for its operations. For instance, a company might depend on clean water from a nearby river for its production processes or rely on pollinators for agricultural activities.
3. Based on the above two, identify potential Risks and Opportunities.
Based on the Impact Drivers and Dependencies, a company can face various risks and opportunities. Risks might include regulatory penalties for environmental damage or reputational risks due to negative social impacts. Opportunities could include cost savings from sustainable practices or new market opportunities from eco-friendly products.
4. Evaluate the Significance / Materiality of these Risks and Opportunities
This is a process where a company assesses both the impact of its activities on external factors (like the environment or society) and the impact of external factors on the company. It's a two-way assessment that considers how the company affects the world and how the world affects the company.
5. Reporting under the relevant Sustainability Topics as per CSRD/ESRS guidelines
From insights gained in previous steps, craft a roadmap detailing impacts, risks, and opportunities to steer towards net-zero operations. Reporting sustainability boosts corporate reputation and trust. Furthermore, it provides early risk identification which can shape strategic choices, possibly boosting long-term financial results. This approach can also draw investors, inspire innovation, and guarantee lasting business sustainability.
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Hi, I'm Rando Pikner
Initiator of SCAPELYSE
Whether you are driven by ethical conviction, regulatory requirements, or the expectations of your value chain partners, undertaking a Double Materiality Assessment is a wise move for any business.
Why?
Beyond highlighting the impacts that might challenge our children and grandchildren, it reveals the risks and opportunities that evolving environmental and societal issues present to your enterprise or investments.
Instead of just meeting standards, stay a step ahead.
Faq.
Biodiversity is the living fabric of our planet. However, human activities are causing a very rapid loss of biodiversity and, with it, “Earth’s ability to support complex life” (Bradshaw et al., 2021). The extinction rate of species is currently 100 to 1,000 times higher than the reference rate of the past million years (IPBES, 2019), and population sizes of vertebrate species have declined by an average of 68% since 1970 (WWF, 2020). Biologists tend to consider that we are currently (or on our way to) causing the sixth mass species extinction in the Earth’s history, the last one having occurred 65 million years ago (Ceballos et al., 2015).
So, our planet is experiencing its largest loss of life since the dinosaurs. One million plant and animal species are now threatened with extinction, many within decades.
The EU Taxonomy is a classification system that defines criteria for economic activities that are aligned with a net-zero trajectory by 2050 and broader environmental goals other than just climate. It's a cornerstone of the EU’s sustainable finance framework and serves as a market transparency tool. The taxonomy aims to direct investments towards the economic activities most needed for the transition in line with the European Green Deal objectives.
In EU Taxonomy economic activities are classified onto two brad categories, the ones that can make a substantial contribution to "Climate Change Mitigation" and those that can make a substantial contribution to "Climate Change Adaptation":
- Climate Change Mitigation: This pertains to efforts to reduce or prevent the emission of greenhouse gases. It can be achieved through the use of new technologies, renewable energies, making older equipment more energy efficient, or changing management practices or consumer behavior.
- Climate Change Adaptation: This refers to the strategies, initiatives, and measures taken to reduce the vulnerability of natural and human systems against actual or expected climate change effects. It's about making adjustments in systems or processes in response to observed or expected changes in climate, to minimize harm or exploit beneficial opportunities.
In essence, Double Materiality is a comprehensive approach that requires companies to evaluate and report on:
- How they impact the environment and society (their externalities).
- How environmental and social issues might impact them (risks and opportunities).
The concept emphasizes that sustainability matters are not just about corporate social responsibility but are intrinsically linked to a company's long-term viability and success.
According to the European Single Electronic Reporting Format (ESRS), "Double Materiality" refers to the dual perspective of assessing materiality in the context of sustainability reporting:
- Impact Materiality (Outward Impact): This perspective considers the impacts of the company's activities on environmental and social factors. It assesses how the company's operations, products, or services affect the environment, society, and stakeholders. This is about understanding the company's footprint on the world.
- Financial Materiality (Inward Impact): This perspective looks at how environmental and social factors impact the company's ability to create value in the short, medium, and long term. It's about understanding how sustainability issues might affect the company's financial performance, operational efficiency, and overall value proposition.
PS. Specific consideration is given to the definition of financial materiality, particularly in ESRS 1 paragraph 48 of the Delegated Act. It was stated by EFRAG on 23th of August 2023 that material financial information under ESRS is now focused on the needs of primary users (investors), assuming that the needs of other stakeholders are satisfied either through impact materiality information or through the information needed by investors.
Trees and forests: The trees and forests on the land can provide a range of benefits such as carbon sequestration, air and water purification, habitat for wildlife, and recreational opportunities.
Soil: The soil on the land is a natural resource that provides a range of ecosystem services such as nutrient cycling, water filtration, and support for plant growth.
Water: The water resources associated with the land, such as rivers, lakes, and groundwater, can provide a range of benefits such as drinking water, irrigation, and recreation.
Biodiversity: The variety of plant and animal species on the land can provide important ecosystem services such as pollination, pest control, and nutrient cycling.
Landscapes: The natural landscapes on the land, such as mountains, coastlines, and wetlands, can provide a range of ecosystem services such as carbon sequestration, water regulation, and recreation opportunities.
Ecosystem accounting is part of a broader movement towards natural capital accounting, which seeks to incorporate the economic value of nature into accounting and decision-making processes.
Ecosystem accounting involves:
1. Identification and quantification of the physical properties of ecosystems and their services, such as the area of different types of ecosystems (forests, wetlands, etc.) and the volume of services they provide (clean air, water filtration, etc.).
2. Assigning monetary values to these ecosystems and their services. These values can be based on the cost of replacing the service, the income generated from the service, or the economic value of the service to society.
3. Integrating these physical and monetary data into a comprehensive set of accounts, which can be used to monitor changes over time and inform decision-making.
Some examples of return on Natural Capital Assets include food, water, air, timber, energy & fuels. Return is also a balanced ecosystem or richness of species such like in botanical gardens. Rejuvenation of human mind & body in the nature is also an example of return on natural assets.
The process starts by collecting data about your company, including its economic activities, products, and services. Information about your value chain, both upstream and downstream, is also essential. If your company holds any certifications, that information is crucial. For companies with direct impacts on land use, relevant data on associated ecosystems and biodiversity must be gathered. In specific cases, we may need additional data such as satellite images, LiDAR data, and orthophotos
Scapelyse aims to provide you with the best possible guidance to navigate you though the impact assessment and sustainability reporting process
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