Navigate the CSRD framework and elevate your business

Focusing solely on traditional financial risks and opportunities is no longer sufficient. Growing awareness of the importance of sustainable development is placing new demands on companies to address sustainability-related aspects in a structured and thoughtful way.

At first glance, these requirements may seem like a burden. However, when applied effectively, they can make sustainability reporting both value-creating and efficient. By standardising reporting requirements, CSRD contributes to a more comprehensive and consistent disclosure of sustainability information, making it easier for investors and stakeholders to gain a clearer understanding of companies’ sustainability performance and their impact on society and the environment. CSRD increases transparency and comparability between companies. As a result, customers, investors, financiers, business partners, suppliers, job seekers, regulators, and journalists will all have access to sustainability information. This enables stakeholders to make more informed decisions based on how sustainable they perceive a company to be.

Reporting requirements and scope depend on size, type of operations, and industry. At BDO, we help you navigate the framework and identify the factors most relevant to your specific business.

A brief Overview of CSRD and ESRS

The Corporate Sustainability Reporting Directive (CSRD) is the EU’s directive on sustainability reporting, aimed at strengthening requirements for how companies report on sustainability matters.

The directive is designed to increase the transparency and comparability of sustainability information, promoting more sustainable and responsible business practices. CSRD replaces the previous Non-Financial Reporting Directive (NFRD) and expands the scope and depth of reporting requirements.

The objective of CSRD is to make it easier for companies to report relevant and material sustainability information. In turn, this provides investors and stakeholders with better insight into companies’ sustainability performance and risks. By strengthening and broadening reporting requirements, CSRD is expected to enable companies to deliver more comprehensive and reliable disclosures about their impact on society and the environment. This supports more informed decision-making and contributes to sustainable development.

ESRS, or European Sustainability Reporting Standards, is a new common reporting standard for sustainability reporting within the EU.

ESRS provides guidelines and requirements for how companies should report on sustainability matters, including disclosure requirements and reporting formats. It consists of a set of standards covering different areas, grouped into three overarching categories: environmental, social, and governance (ESG). The framework is based on the principle of double materiality. ESRS 1 outlines the requirement for a double materiality assessment, emphasising the importance of identifying and reporting relevant sustainability issues to provide a complete and accurate picture of a company’s sustainability performance. By adhering to the ESRS framework, companies can contribute to greater transparency and comparability in sustainability reporting, making it easier for investors and stakeholders to assess performance and risks.

The auditors new role

The new directive entails an expanded responsibility for auditors. Sustainability reports will be subject to mandatory limited assurance by an independent auditor. The company’s statutory auditor, or another independent external assurance provider, must carry out a limited review of the company’s sustainability information.

All providers of assurance services for sustainability information must meet requirements like those applied to statutory auditors of financial statements, including qualifications, objectivity, independence, ethics, quality assurance, and oversight.

Identifying the company's impact across all areas through a double materiality assessment

The EU’s sustainability reporting standards, ESRS, require companies to carry out a double materiality assessment. Within the CSRD and ESRS framework, this assessment plays a central role in ensuring compliance with upcoming legal requirements and in providing a complete and accurate picture of a company’s sustainability performance.

The purpose of a double materiality assessment is to identify the company’s material impacts, risks, and opportunities related to ESG aspects that must be reported in accordance with CSRD and ESRS. The process begins by identifying the company’s actual and potential impacts, both positive and negative on people and the environment across the short, medium, and long term. In this process, two main categories are considered:

All sustainability matters listed in AR 16 of ESRS 1
Sustainability matters that, although not included in AR 16 of ESRS 1, are considered unique, significant, or central to the company’s operations

A double materiality assessment also includes several key components: business model analysis, current state analysis, forward-looking analysis, and stakeholder analysis. Together, these steps guide the identification of what is referred to as IRO—Impact, Risk, and Opportunity.

The criterion for double materiality is met when a sustainability issue is considered material from an impact perspective, a financial perspective, or both. This assessment forms the foundation for determining what the organisation should prioritise in its sustainability efforts and reporting. It also determines which disclosures become mandatory to provide a comprehensive view of the company’s sustainability impact.

By applying the concept of double materiality, companies can ensure that their sustainability reporting is relevant, reliable, and aligned with the standards and requirements set out under CSRD and ESRS.

The role of stakeholders in the materiality assessment

Stakeholders are individuals or groups that can influence, or be influenced by, a company’s operations. Engaging in dialogue with stakeholders is a central part of the company’s materiality analysis. By participating in dialogue with stakeholders, the company can gain insights and perspectives that are crucial for a more comprehensive assessment process.

Maintaining an open dialogue and collaboration with relevant stakeholders to receive feedback on conclusions regarding material impacts, risks, and opportunities is an essential part of the assessment. By prioritising and addressing stakeholders’ needs, companies can build strong and deeper relationships, which in turn can lead to increased trust and sustainability in business operations.

When should a double materiality assessment be conducted?

If your company is required to report on sustainability in accordance with the CSRD, conducting a double materiality assessment is mandatory. A materiality assessment is an important process for identifying the sustainability issues that a company both impacts and is impacted by, and which therefore should be included in the company’s reporting.

If you are at the beginning of your sustainability efforts and are wondering which focus areas should be prioritised, a materiality assessment helps identify the right and most important areas. This also applies if you need to update existing strategies and action plans.

If you want to increase trust among the company’s internal and external stakeholders regarding sustainability, a materiality assessment can make it easier to highlight the company’s impact on climate, the environment, and society, as well as how climate, the environment, and society can affect the company. Increased transparency builds trust.

If you need to strengthen ownership and anchoring of sustainability within the board and management team, a double materiality assessment can help highlight the sustainability-related risks and opportunities facing the business. This is particularly linked to financial consequences, such as increased costs, impacts on future cash flow, changes in market position, and reputation.

How do you get started with a materiality assesment?

BDO has experts in the analysis and mapping of sustainability-related topics, as well as industry experts with knowledge of current and upcoming sustainability reporting requirements. We can help and support your company by:

Mapping the company’s sustainability context by identifying relevant processes, markets, the value chain, and key stakeholders.
Identifying the company’s impacts on the environment, society, and people.
Assessing the severity and scope of identified impacts.
Identifying risks and opportunities that may affect the company’s future value creation.
Assessing the financial consequences of identified risks and opportunities.
Prioritising key topics for further focus in sustainability strategy, operations, and reporting.
Preparing a visual representation of the materiality assessment that meets the information needs and requirements set out by the CSRD.

How is the implementation of a double materiality assessment facilitated?

A double materiality assessment is a central part of determining which sustainability issues a company should report on and is essential for identifying material impacts, risks, and opportunities. With support from BDO, your company can streamline the process, save time, and increase the accuracy of reporting in accordance with the requirements of the CSRD and ESRS.

How we can help you with ESG and sustainability

Formulation and documentation of ESG strategy
Benchmark analysis against industry peers and competitors
Sustainability reporting in accordance with CSRD
Training courses on CSRD
Double materiality assessment
Gap analysis against CSRD and ESRS
Taxonomy reporting
Support with the review of sustainability reports in accordance with the Swedish Annual Accounts Act (ÅRL)
Sustainable Finance

Sustainability reporting with CSRD