The double materiality analysis has established itself as a key tool within the framework of the Corporate Sustainability Reporting Directive (CSRD). This method enables companies to assess both financial and non-financial aspects of their business activities in order to focus on their material topics.
But how do you carry out a double materiality analysis? EFRAG has published a materiality analysis guide. Many companies are faced with the choice between traditional methods, such as using a materiality analysis Excel template, and specialized ESG software solutions developed for materiality analysis. Both approaches have their advantages and disadvantages, which are particularly relevant in the context of CSRD.
Double materiality analysis with Excel
Advantages of the double materiality analysis with Excel in the CSRD context
Using Excel to perform a double materiality analysis offers numerous advantages, especially for small and medium-sized companies.
- Flexibility and adaptability: Excel is an extremely flexible tool that can be easily adapted to the specific needs of a company. Users can create their own templates and formulas or adapt existing templates to capture and analyze data according to the requirements of the European Sustainability Reporting Standards (ESRS). This enables a customized approach that is individually tailored to the respective reporting requirements.
- Low costs and easy implementation: A major advantage of Excel is that most companies already have licenses. This means that there are no additional costs for purchasing new software and the effort for CSRD training is minimal. This makes Excel a cost-effective solution for materiality analysis. Only the cost of purchasing a materiality analysis template is incurred.
- Widespread use and familiarity: Many employees are familiar with Excel and use it regularly for various tasks. This familiarity reduces training time and makes it easier to integrate materiality analysis into existing workflows. Excel’s intuitive user interface and extensive functions make it easy to use.
Disadvantages of the materiality analysis with Excel
- Greater susceptibility to errors with manual input: As Excel mainly relies on manual data input, there is an increased risk of errors. These can be caused by typing errors, incorrect formulas or inaccurate data and affect the accuracy of the analysis. This can lead to considerable problems, especially with large amounts of data. To avoid errors in the formulas, it makes sense to use proven Excel templates, such as those from CSR Tools.
- Text-heavy instructions: Templates often have the requirement to guide users step-by-step through the materiality analysis process. Excel is not ideal for displaying large amounts of text clearly.
- Difficulties in analyzing information: The double materiality analysis in CSRD requires the analysis of extensive information. Although Excel offers basic functions for data analysis, it is less suitable for creating complex data models and interactive dashboards.
- Updates to the template and changes to the legal situation: When a materiality analysis Excel template is updated, it must be distributed again and any data that was already entered in the previous version must be manually transferred to the new version. Although the effort is usually manageable, it is still a source of potential errors.
Using Excel for double materiality analysis offers some clear advantages, particularly in terms of flexibility, cost and familiarity. According to this CSRD software study by PwC, Excel is one of the most popular tools for implementing sustainability reporting. For companies looking for a simple and cost-effective solution, Excel may be a suitable choice, while larger companies or those with extensive sustainability requirements may want to look for specialized software.
Double materiality analysis with software
Advantages of materiality analysis software in the CSRD context
The use of specialized software to perform a double materiality analysis, such as the Materiality Master, offers numerous advantages that are particularly important in the context of the Corporate Sustainability Reporting Directive.
- Automation and accurate data analysis: Specialized materiality analysis software offers advanced automation features that make the entire analysis process more efficient and less error-prone. Automated data processing and analysis ensures that data is consistent and accurate, leading to more precise results. This is particularly important in the CSRD context, where accuracy and reliability of data is critical.
- Comprehensive data visualization and reporting: Modern materiality analysis software offers extensive functions for data visualization and the creation of a materiality matrix. Interactive dashboards, charts and graphs allow complex data to be easily interpreted and presented, whether at topic or sub-topic level. These visualization options make it easier to analyse and communicate key findings.
- Auditability: The report and the procedure for carrying out the double materiality analysis are subject to a CSRD audit by auditors. A software solution usually provides a traceable audit trail.
- Access authorization: Materiality analysis software solutions offer extended access permissions that allow user roles to be customized and sensitive data to be managed securely.
- Artificial intelligence: By using artificial intelligence, software solutions can significantly increase the accuracy and efficiency of materiality analysis. We have compiled a list of helpful materiality analysis AI prompts regardless of whether you use software or Excel.
Disadvantages of materiality analysis software in the CSRD context
Despite the many benefits, there are also some challenges and potential drawbacks to using specialized software for double materiality analysis.
- Higher costs for licenses and implementation: The acquisition and implementation of specialized software can involve considerable costs. This includes license fees, possible implementation costs through CSRD consultations and possible ongoing maintenance fees. For smaller companies or those with limited budgets, this can be a significant hurdle.
- Need for training and familiarization: The use of new software often requires training and familiarization time for employees, depending on the complexity of the solution. This can lead to a temporary drop in productivity until all users are familiar with the new software. The need for training can be particularly high if the software offers complex functions and user interfaces.
- Dependence on software providers: Companies that use CSRD software are often dependent on the providers of this software. This includes support, regular updates and adapting the software to new regulatory requirements such as the CSRD. Such dependency can bring potential risks, especially if the provider discontinues its services or does not further develop the software. It is important to pay attention to export functions and interoperability with other solutions.
- Complex selection: A CSRD study by Ubirch confirms a fragmented software landscape. This dynamic market makes it time-consuming and challenging to identify the ideal software. We have developed a CSRD software guide for companies, which is helpful in selecting a tool for identifying the key IROs (Impacts, Risks and Opportunities). This is particularly useful in making the right decision due to the increasing number of ESG reporting software solutions.
The use of materiality analysis software in the context of CSRD offers significant advantages, particularly in terms of automation, data visualization and auditability. These benefits can lead to a more accurate and efficient analysis that meets the requirements of CSRD. However, companies must also consider the potential disadvantages, particularly the higher costs and possible dependence on software providers.
Comparison of materiality analysis Excel vs. software for the CSRD
Performance and efficiency
Time and accuracy in data collection and analysis: Software solutions offer significant advantages over Excel in terms of automation and error prevention. Automated data processes allow large volumes of data to be processed quickly and accurately, which significantly increases efficiency. Excel, on the other hand, requires manual input and calculations, which can be error-prone and time-consuming. This makes specialized software particularly attractive for companies that need to analyze extensive sustainability data. If Excel is to be used, it pays to fall back on established templates.
Data visualization: Software solutions are often designed to manage complex data models and visualize this data clearly. They enable a comprehensive analysis of ESG data. Excel reaches its limits when it comes to creating flexible dashboards, but can also display a simple materiality matrix.
User-friendliness and training effort
Training period for employees: While Excel is widely used and many employees are already familiar with the basic functions, the use of specialized software sometimes requires a longer training period and support from CSRD experts. Unless the software is as intuitive and user-friendly as the Materiality Master.
User interface and ease of use of the tools: Specialized software solutions often offer user-friendly interfaces that have been specially developed for carrying out sustainability analyses. These interfaces are more intuitive and offer advanced functions for visualizing and analyzing data. Excel, although versatile, is less specialized and can be more cumbersome when performing complex analyses and displaying longer instructions.
Costs and resources
Initial and ongoing costs for implementing the double materiality analysis: Excel is inexpensive as it is often already available in companies and does not incur any additional costs apart from the purchase of a suitable Excel template. Specialized software, on the other hand, requires investments in licenses and possibly Implementation. Depending on the provider and scope of the software, these costs can be considerable, but should be weighed against the potential efficiency gains and the accuracy of the analyses.
Resource expenditure and return on investment (ROI): Implementing specialized software can be resource intensive initially, but offers a higher long-term return on investment through improved efficiency, accuracy and reporting. Excel may be more cost effective in the short term, but the increased workload and reduced accuracy may reduce the benefits compared to specialized software solutions.
Decision making
When Excel is the better choice for the materiality analysis
Criteria and scenarios in which Excel is suitable for the double materiality analysis:
- Smaller companies with a limited budget: Excel offers a cost-effective alternative for companies that do not have large financial resources available for expensive software solutions. The use of existing Office licenses minimizes additional costs.
- Familiarity and existing know-how: If employees are already familiar with Excel, it can be an effective solution. The training time and familiarization effort are minimal.
- Flexibility and adaptability Excel enables a high degree of flexibility and adaptation to specific requirements and can be tailored to the individual needs of the company.
- Quick start By purchasing a materiality analysis Excel template, you can start immediately and do not have to go through a time-consuming software selection process.
When software is the better choice
Criteria and scenarios, in which specialized software is preferable for the dual materiality analysis:
- Large companies with extensive data requirements: Organizations that need to process large amounts of data and perform complex analysis benefit from the automation and advanced features of materiality analysis software.
- Increased precision and accuracy: Specialized software minimizes the risk of human error through automated processes and provides more accurate results, which is particularly important in the context of CSRD. Errors can easily occur, especially when determining the ESRS data points to be reported.
- Advanced reporting and visualization functions Software solutions offer extensive visualization and reporting functions that enable complex data to be displayed clearly.
Recommended actions for companies to comply with the CSRD
- Conduct a needs analysis: Companies should conduct an analysis of their specific requirements and resources to determine which tool is best suited.
- Cost-benefit analysis: The cost of implementing and using specialized software should be weighed against the potential efficiency gains and accuracy of the analyses.
- Consider training requirements: Training needs and familiarization time should be factored into the decision, especially when implementing new software.
- Long-term perspective: In view of the fact that the sustainability report must be published annually, companies should also include long-term factors such as future scalability in their considerations.
The double materiality analysis is an important strategic tool for companies. The decision to perform the materiality analysis using Excel or specialized software will not only affect efficiency and accuracy, but also the company’s ability to produce transparent and comprehensive sustainability reports that meet the requirements of the CSRD. It is helpful to consider materiality analysis benchmark studies to get a practical insight into other companies.
At a time when sustainability and responsibility are becoming increasingly important, choosing the right tool for double materiality analysis is a crucial step towards sustainable and future-oriented corporate governance. By making the right decision, companies can not only fulfill their regulatory obligations, but also make a positive contribution to the global sustainability agenda.
