The new European sustainability directive, the Corporate Sustainable Reporting Directive (CSRD), is going to require an increasing number of companies to report on sustainability themes. To determine which themes exactly, the principle of double materiality applies. But what exactly is that, and how do you as a company make a considered and informed choice in all those different sustainability topics? The principle of dual materiality calls for a focus on the commodity transition.
The CSRD in brief
In short, what is going to happen? Through the CSRD, Europe is going to require companies with more than 250 employees, a turnover of at least 40 million and/or with 20 million on their balance sheet to report transparently on sustainability. This will be done through the annual report, but the implications are obviously bigger. The CSRD calls for a strategic vision on the topic and sustainable business practices. The CSRD takes effect from 2025, but companies of this size would do well to prepare for the impending obligations now.
Dual materiality, what is it?
A key principle in CSRD is that of dual materiality. This means that companies explicitly ask themselves how they relate to the world and vice versa. What impact does a company have on the world? And on the other hand, what impact do all the sustainable challenges in the world have on the organisation's future resilience? Companies check this with their key stakeholders. To investigate this properly, a complete and broad picture of sustainability is necessary. This is not yet that simple.
The CSRD, finance and sustainability
In many organisations, the task of getting started with the CSRD falls to the finance department. Logical, as they have always been responsible for financial reporting. On top of that, there are now sustainability obligations. But the finance department lacks the necessary knowledge about sustainability. The sustainability department does have it, if organisations have one, but it often lacks experience with reporting and the principles behind it.
Getting started, but how?
Many companies therefore need a roadmap: how are you going to implement CSRD within the organisation? These roadmaps circulate liberally on the internet these days, and almost without exception start with: make a longlist of various sustainability topics that apply to your organisation. The danger, however, is that this list is drawn up on the basis of the knowledge and perception of sustainability within the organisation at the time.
Focus on CO2 emissions is too narrow
For most companies, climate impact is one of the most salient issues. Derived from that is CO2 emissions. Also logical, that is what more than 90% of the sustainability debate is about. There is still relatively little attention to other planetary risks. While these can certainly have an impact on both the world and the future sustainability of the company, as the SER report on broad prosperity also shows.
A broad view is needed: planetary boundaries and the model of broad value creation
It is therefore important to examine the full breadth of sustainability for materiality. This requires looking at the subject through different lenses. There are several perspectives to choose from. For instance, there are the six values for broad value creation. These provide starting points for a broad view of sustainability. Even when planetary boundaries are adhered to, substantiated material themes can be determined. To include social themes as well, the principles of the donut economy are a guide.
Broad view exposes impact and risks of resources as theme
With a broad focus on sustainability, raw materials will also appear more often on the list of material sustainability topics. Mining, processing, using and destroying raw materials has a major impact on our planet. And also affects the continuity of an organisation. So raw materials have an impact on an organisation, and the use of raw materials also involves various risks. We have put the main risks front and back of the chain in a matrix. The top part of the matrix deals with the impact of the company on the world, the bottom part for the risks around the topic of raw materials on the organisation itself. It can be seen that the risks around raw materials can affect the survival of an organisation.
|
front of the chain |
back of the chain |
|
| impact on man and environment |
Contributing to further scarcity |
Pollution of land and water by waste |
| impact on company |
Higher procurement costs |
Stricter laws and regulations, inability to remain compliant |
In the table above, we have shown some potential risks associated with the resource transition. It shows the relevance of looking at the entire chain in light of the commodity transition. And that effects can be as much on the environment as on the organisation. Organisations can identify material risks for themselves. Sustainability will have to be approached from different angles to get a good overview of the material risks.
Examples
So what might those risks around commodities look like in practice? We take some examples from the matrix. For example, 'contributing to further scarcity'. By always using fossil raw materials for a production process, and not looking at reusability or looking for renewable sources, as an organisation you contribute to the increasing scarcity of raw materials. That is a risk to the planet. Bearing in mind that not all fossil raw materials are critical and not all critical raw materials are fossil.
A risk for your organisation is dependence on materials and raw materials. Due to raw material scarcity, many companies face longer delivery times and some materials cannot even be obtained at all. There is also a risk of having to make concessions on quality. This directly affects the production process and touches the core of the organisation.
Another example is the cultivation of, say, palm oil or cocoa. This is done on land that is fertile because of the rainforest that used to be there. Over time, that fertility will diminish and production declines. In addition, deforestation further contributes to climate change. The next risk is about taxes on emissions and waste. For instance, the statutory waste tax (WAB) is rising. The recent nitrogen crisis is also keeping many construction and farming businesses in check.
Want to know more about the resource transition?
Milgro helps companies gain insight into different raw material flows. To get a grip on those flows from this insight. With the arrival of the CSRD - and thereby the principle of dual materiality - Milgro is happy to help its clients gain a broad view of the raw material transition and the implications for people, the environment and the organisation. We also assist organisations in going through that transition. Want to talk further? We would be happy to make an appointment with you to discuss the possibilities.
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We regularly publish articles and blogs on natural capital, the circular economy and sustainable waste and resource management.Staying informed? Follow Milgro on LinkedIn or instagram.
