Companies face the challenge of presenting their environmental, social and governance (ESG) performance in a transparent and comprehensible manner. A central component of the requirements for reporting in accordance with the European Sustainability Reporting Standards (ESRS) is double materiality. This analysis helps companies to identify relevant sustainability issues and assess their impact on the company and society.
In this article, we highlight the results of two recent benchmark studies on materiality analysis. The first study is the short survey of the German Accounting Standards Committee (GASC), which was conducted in June/July 2024 among the DAX 40 companies. The second study, conducted by the University of Cologne, examines the early application of CSRD materiality analysis in STOXX Europe 600 companies.
These analyses provide valuable information for companies wishing to optimize their sustainability reporting and meet the requirements of the ESRS.
1) Materiality analysis benchmark study of the DRSC among DAX 40
In June/July 2024, the German Accounting Standards Committee (GASC) conducted a short survey on the status of materiality analysis in accordance with the European Sustainability Reporting Standards (ESRS) among the DAX 40 companies. Of the 40 companies, 34 took part in the materiality analysis benchmark survey, which corresponds to a high response rate of 85%.
Background to the materiality analysis benchmark study
The aim of the GASC survey was to gain an overview of the implementation status of the dual materiality analysis in the leading German companies. This analysis is particularly relevant for large companies of public interest with more than 500 employees. These companies must prepare a sustainability report in accordance with the Corporate Sustainability Reporting Directive (CSRD) for the 2024 financial year and apply the concept of dual materiality.
Key results
The survey focused on several key aspects of the dual materiality analysis, including the topic-specific ESRSs, the number of sustainability topics identified and the auditor review process.
1. Application of the ESRS standards
All participating companies stated that they apply the ESRS E1 (Climate Change) and ESRS S1 (Own Workforce) standards as part of their sustainability reporting. Almost all companies (33 out of 34) also plan to apply the ESRS G1 (Business Conduct) standard.
Other ESRS standards such as ESRS E2 (Environmental Pollution), ESRS E5 (Use of Resources and Circular Economy) and ESRS S2 (Workforce in the Value Chain) were also identified as relevant by several companies.
2. Number of sustainability topics identified
The participating companies identified between 12 and 86 material sustainability topics on the basis of ESRS 1 AR 16. The wide variation in the number of topics shows that the companies apply different approaches and priorities when assessing materiality. On average, 42.2 topics were classified as material, with a median of 40 topics.
3. Further topic-specific ESRS
20 companies address ESRS E2 (Pollution), 16 companies ESRS E3 (Water and marine resources), 18 companies ESRS E4 (Biodiversity and ecosystems), 26 companies ESRS E5 (Circular economy), 25 companies ESRS S2 (Workers in the value chain), 15 companies ESRS S3 (Affected communities) and 23 companies ESRS S4 (Consumers and end users).
4. Company-specific topics
32% of the companies plan to report no company-specific topics; 50% plan one to two company-specific topics; 15% plan three to seven topics; one company plans 19 company-specific topics.
5. Process review of the materiality analysis
Another focus of the survey was the status of the process review of the materiality analysis by auditors. 41% of the participating companies (14) had already received a preliminary assessment from their auditors that their procedures are in line with the requirements of the ESRS. 44% (15 companies) were in intensive discussions with their auditors about the chosen process at the time of the survey.
Discussion of the challenges and findings to date
The results of the DRSC survey show that most DAX 40 companies have already made significant progress in implementing the ESRS standards. The application of the material ESRS topics such as climate change and own workforce shows a broad recognition of the supposedly most important sustainability topics. However, the wide variation in the number of topics identified indicates different interpretations and approaches to conducting the dual materiality analysis.
Another key issue is the close cooperation with auditors to ensure that the materiality analysis processes comply with regulatory requirements. This underlines the complexity and the high demands placed on the transparency and traceability of sustainability reporting.
Overall, the DRSC study offers valuable insights into the current status of materiality analysis in the leading German companies and serves as an important benchmark for other companies that will also have to deal with this topic in the future as part of CSRD reporting.
2) Materiality analysis benchmark study of the STOXX Europe 600
The second study, conducted by Prof. Dr. Maximilian Müller and Nina Valkyser of the University of Cologne, focuses on the early application of materiality analysis according to the ESRS in the companies of the STOXX Europe 600 Index. This study provides in-depth insights into materiality assessments and reports on best practices and common challenges in the implementation of the new standards.
Background to the materiality analysis benchmark study
The CSRD Materiality Analysis Study examines the early adoption of materiality analysis by companies in the STOXX Europe 600 Index for the 2023 financial year. Around 8% of the companies in the index have adopted the CSRD standards early. The study categorizes the companies into “early adopters” and those that have implemented double materiality according to CSRD. A total of 48 companies were analyzed, which are representative of the index in terms of their sectors and size.
Results of the materiality analysis benchmark study
1. Materiality of subject standards
- Climate change and workforce: All companies surveyed rated ESRS E1 (Climate change) and ESRS S1 (Own workforce) as material topics. Most companies (39 out of 45) also considered ESRS G1 (Business Conduct) to be material.
- Other topics: Other relevant topics include ESRS E2 (Pollution), ESRS E3 (Water and Marine Resources), ESRS E4 (Biodiversity and Ecosystems), and ESRS E5 (Circular Economy). For social topics, ESRS S2 (Workers in the value chain) and ESRS S4 (Consumers and end users) were classified as relevant by several companies.
2. Distribution and relevance of specific and company-specific topics
- Company-specific topics: More than half of the companies identified company-specific issues, with cyber security and data protection being the most frequently mentioned. Other frequently mentioned topics were product safety and financial stability.
- Frequent sub-topics: The most common sub-topics included working conditions (69%), climate change mitigation (60%) and equal treatment and opportunities for all (60%).
3. Benchmarking: comparison of best practices and common methods
- Best practices: The study shows that none of the companies surveyed fully meet the best practice standards. However, many companies are on the right track, particularly with regard to the step-by-step approach to materiality analysis.
- Challenges: Implementing a quantitative assessment of sustainability issues remains a challenge. Only a few companies (8%) currently use quantitative approaches to assess the impact and financial relevance of issues.
The study by the University of Cologne provides valuable insights into how European companies are implementing the requirements of CSRD. It shows the progress and challenges in applying the materiality analysis and offers practical recommendations for companies wishing to improve their CSRD reporting.
Together with the results of the DRSC short survey, this study provides a comprehensive basis for companies to evaluate and further develop their own practices. It highlights the importance of a systematic and well-documented materiality analysis as a basis for transparent and credible sustainability reporting.
Discussion of the differences and similarities between the studies
The materiality analysis benchmark studies among the STOXX Europe 600 and DAX 40 companies show some similarities, such as the relevance of climate change and workforce issues. Both studies highlight the importance of CSRD audits by auditors and emphasize the need for clear and comprehensible reporting processes.
A key difference lies in the broader application of specific topic standards by the STOXX Europe 600 companies. While the DAX 40 companies show a wide spread in the number of topics reported, the early adopters in the STOXX Europe 600 focus more strongly on certain core standards and company-specific topics.
The CSRD study by the University of Cologne also highlights the importance of best practices and benchmarking to help companies improve their materiality analysis. This is particularly relevant as many companies are still in the process of fully understanding and implementing the new requirements.
Materiality analysis Excel template and workshop offer
To support companies in implementing these best practices, we offer a comprehensive materiality analysis Excel template. This materiality analysis Excel template helps to carry out a stakeholder analysis, systematically identify and evaluate the relevant sustainability issues and automatically creates a materiality matrix.
We also offer practice-oriented materiality analysis workshops to help companies carry out their materiality analysis in accordance with the ESRS standards. Our experts guide you through the entire process. These workshops provide practical insights and help to implement the ESRS requirements efficiently and effectively.
