Double Materiality in CSRD: Key Steps for CFOs

Double Materiality under the Corporate Sustainability Reporting Directive (CSRD) is a game-changer for CFOs in Europe and the UK. It requires companies to assess both financial risks and their societal and environmental impacts. Starting 2024, around 50,000 firms must comply, making this a priority for finance leaders.

Key takeaways:

• What it is: Double materiality evaluates how environmental, social, and governance (ESG) factors affect financial performance and how a company impacts society and the planet.

• Why it matters: Investors, customers, and job seekers increasingly value ESG initiatives, creating both risks and opportunities.

• Challenges: CFOs face fragmented ESG data, complex value chain assessments, and stakeholder engagement hurdles.

• Solutions: Invest in unified data systems, structured stakeholder methods, and external expertise to meet compliance and improve performance.

This shift isn’t just about meeting regulations - it’s a chance for CFOs to integrate ESG into core financial strategies, aligning with market demands.

Understanding CSRD and Double Materiality Assessment

Main Challenges CFOs Face with Double Materiality Implementation

Implementing double materiality under the CSRD introduces a host of challenges for CFOs. The task requires blending financial and sustainability data while ensuring the disclosures meet the high standards necessary for audits. These hurdles compel CFOs to rethink and adapt their existing reporting structures.

Data Integration and Quality Issues

One major obstacle is the fragmented nature of ESG data within organisations. According to an EY study, 60% of finance executives struggle with ESG data being dispersed across multiple, disconnected software systems. Unlike financial data, which is typically streamlined through established accounting platforms, sustainability data often resides in silos - environmental data with facilities teams, social metrics with HR, and governance details with legal departments.

CFOs must gather ESG data from both internal and external sources, ensuring its accuracy and reliability for assurance purposes. This often requires overhauling IT systems and redefining data collection processes. For example, many organisations need to upgrade their systems to handle real-time sustainability data, such as Scope 1, 2, and 3 emissions, while ensuring this information integrates seamlessly with traditional financial metrics.

The Complexity of Value Chain Assessments

Even after addressing data integration, CFOs face the challenge of evaluating impacts across their entire value chain. This requires looking beyond direct operations to consider risks and opportunities within supply chains, subsidiaries, and joint ventures. Managing Scope 3 emissions and associated value chain risks demands robust supply chain data management and financial risk evaluation.

To tackle this, CFOs often implement supplier engagement programmes to gather reliable Scope 3 data and incorporate climate-related risks into enterprise risk management systems. The interconnected nature of modern supply chains complicates this further. For instance, a European multinational's finance team incorporated a carbon budget into their capital purchase decisions. By assigning a "cost" to carbon - whether in kilograms of CO2e or monetary terms over a project's lifespan - they were able to align financial value with sustainability goals.

"CFOs that aren't able to keep up with the demands of sustainability may have a difficult time remaining relevant." - Joukje Janssen, Partner, PwC Netherlands

Additionally, CFOs must develop ESG performance metrics that meet the same scrutiny as traditional financial indicators. Integrating Scope 3 emissions data into broader value chain assessments is essential for meeting double materiality requirements.

Stakeholder Engagement and Documentation Challenges

Another critical aspect of double materiality is stakeholder engagement. The CSRD requires transparency in stakeholder consultations, adding operational complexity to the process. Many finance leaders, however, have limited experience managing the diverse inputs needed for these assessments.

The documentation workload is particularly demanding. CFOs must implement systems to track, document, and audit stakeholder interactions as required by the CSRD. This involves maintaining detailed engagement records, ensuring responses are traceable, and preparing audit-ready documentation.

The stakeholder landscape itself is diverse. CFOs need to engage with suppliers, employees, customers, investors, regulators, and NGOs - each requiring tailored approaches and specific documentation standards. While effective stakeholder engagement can enhance the credibility of double materiality assessments, coordinating these efforts demands significant resources and careful planning.

A real-world example comes from Lincoln Avenue Communities, which conducted a maturity assessment to benchmark its policies and initiatives against its peers. This process enabled the company to create a roadmap outlining priorities, goals, KPIs, and a phased timeline focused on areas most relevant to its stakeholders.

"ESG can't be seen as something separate from the business strategy. So much of what we are focused on is ensuring that we don't have stranded assets in the future and that we are as competitive as possible in the marketplace for our funds, people, and customers." - Tyler Conger, CFO of Lincoln Avenue Communities

These challenges highlight the need for CFOs to work closely with sustainability leaders. Successfully navigating double materiality requires cross-functional collaboration and systems capable of balancing financial precision with sustainability transparency.

Practical Steps for CFOs to Implement Double Materiality

For CFOs navigating the CSRD requirements, having a clear plan is essential. Below are actionable steps to turn compliance demands into efficient business practices.

Build a Data Integration Strategy

A solid double materiality approach starts with integrating financial and sustainability data into a unified system. CFOs need to upgrade IT systems and redefine data collection processes to align with CSRD guidelines. This involves assembling teams from finance, sustainability, and other departments to ensure a well-rounded perspective. These teams should craft standardised reporting templates and establish reporting protocols to manage the dual focus on financial and impact materiality.

Technology is a key enabler here. CFOs can utilise sustainability management software and AI tools to gather, verify, and report data accurately. Modern platforms now combine CSRD KPIs with financial metrics, offering real-time dashboards for better oversight.

The strategy must also prioritise data accuracy and quality, whether it comes from internal operations or external ESG sources. Verification processes should meet the same rigorous standards applied to financial data, ensuring reliability in management reports. For those seeking a comprehensive approach, the financially-integrated sustainability management framework embeds ESG considerations directly into financial workflows.

This integration not only ensures compliance but also supports strategic decision-making. Once the data systems are in place, the next step is to engage with stakeholders effectively.

Use Structured Stakeholder Engagement Methods

With unified data streams established, the focus shifts to stakeholder engagement. A systematic approach is crucial here, starting with identifying and prioritising stakeholders based on their relevance to sustainability issues and their concerns. CFOs should then choose suitable engagement methods, such as interviews, workshops, or online surveys, depending on the stakeholder group and the depth of input required.

To make the process manageable, involve a smaller group of stakeholders with expertise in ESG and operational insights. When direct engagement isn't feasible, representatives like sales teams can act as proxies for customer interests.

The engagement process itself should follow a structured format: reach out to stakeholders, explain their importance in the process, and collect their input. Once data is gathered, centralise and weigh responses by key issue categories to produce actionable insights. Document decisions on impact relevance and thresholds to ensure audit readiness. Finally, analyse the results to identify both risks and opportunities, prioritising them based on stakeholder feedback. This analysis should be validated by top management to ensure alignment with strategic goals.

Work with External Experts and Auditors

Collaborating with external specialists can greatly enhance the quality of double materiality assessments. CFOs should engage assurance providers early to verify data accuracy and establish audit-ready documentation. This proactive step lays a strong foundation for the reporting process.

For technical areas like carbon footprint calculations, consulting firms can help align methodologies and models. External experts can also provide valuable insights into complex challenges like biodiversity and human rights.

To streamline the audit process, CFOs should align assessment criteria with senior management and auditors from the outset. This prevents costly revisions later and ensures the documentation meets audit standards. Sophie Chirez, EY Belgium Climate Change and Sustainability Executive Director, advises:

"Remain critical at all times, because often people think they are doing a good job, while a critical outsider can see more quickly where the gaps are or where adjustment is needed."

Modern technology platforms can further simplify audits by offering direct access for auditors to review and verify data. This reinforces the CFO's role in delivering transparent and reliable sustainability reporting.

How FiSM Platforms Support Double Materiality Success

The challenges of fragmented ESG data and the complexity of stakeholder expectations have made managing double materiality a daunting task for CFOs. That’s where Financially-integrated Sustainability Management (FiSM) platforms come in. These platforms provide a unified way to handle the dual materiality requirements - impact and financial - while maintaining the same level of precision typically reserved for financial reporting. Instead of juggling separate systems for financial and ESG data, FiSM platforms streamline this process, offering CFOs a clear path to effective double materiality assessments. A standout example of this approach is neoeco, which demonstrates how integration can simplify these challenges.

neoeco: A Complete FiSM Solution for CFOs

Designed with CSRD compliance in mind, neoeco merges financial and sustainability data into one system. At its core is the FiS Ledger, which embeds over 90 ESG impact factors directly into financial transactions using double-entry principles. This ensures that sustainability data is treated with the same audit-grade rigour as financial data.

The platform supports a variety of compliance frameworks, including ISSB (IFRS S1 & S2), CSRD, GHGP, and TCFD. This means CFOs can handle multiple reporting requirements from a single interface. With AI-driven automation, neoeco eliminates manual processes by capturing, mapping, and reporting data automatically. Its Life Cycle Assessment (LCA) methodologies provide science-based carbon and ESG accounting across 96 impact categories, making it particularly useful for CFOs managing complex value chains.

Integration is another strong suit. neoeco connects effortlessly with accounting tools like Xero and QuickBooks, ERP systems, energy metres, and HR platforms. This seamless connectivity eliminates data silos, creating the unified streams of information essential for double materiality assessments.

Key Benefits of Using neoeco for Double Materiality

neoeco addresses many of the pain points CFOs face when managing ESG data and compliance. Here are some of the standout benefits:

• Real-time ESG insights: CFOs can continuously monitor both financial and impact materiality, avoiding the pitfalls of periodic assessments that might overlook emerging risks or opportunities.

• Comprehensive audit trails: The platform tracks data sources, methodologies, and decision-making processes, ensuring transparency and meeting the high standards required for CSRD reporting.

• Centralised operations: All sustainability workflows, policies, and reports are managed within a single system. This reduces the complexity of coordinating across departments and improves oversight.

• Custom reporting capabilities: CFOs can create tailored dashboards that align with their organisation’s materiality matrix. Prebuilt templates enable quick implementation, while customisation options ensure the platform adapts to specific business needs.

• Embedded compliance: neoeco integrates sustainability considerations directly into financial decision-making, turning compliance into an integral part of business operations rather than a standalone task.

neoeco vs Manual Processes: A Comparison

When comparing a platform-based approach like neoeco to manual processes, the advantages become clear:

For CFOs managing complex value chains, neoeco’s systematic tracking of Scope 3 emissions and other ESG impacts across suppliers and partners is a game-changer.

For organisations just starting to implement double materiality, neoeco offers a structured framework that simplifies compliance with CSRD while building the foundation for long-term sustainability management. By automating and centralising processes, the platform turns what might seem like an overwhelming regulatory challenge into a manageable and strategic opportunity.

Conclusion: Transform Compliance into Business Advantage

Double materiality isn't just about ticking regulatory boxes - it’s a strategic opportunity for CFOs to blend impact and financial data, turning compliance into a tool for driving business value. This dual perspective allows companies to move beyond obligations and position themselves for long-term advantage.

Using FiSM platforms like neoeco takes this transformation to the next level. Businesses leveraging tools like neoeco have achieved impressive results, including a 10x increase in emissions data detail, a 60% reduction in manual data collection time, and an 80% improvement in assurance readiness and closing data gaps. These gains turn compliance from a reactive task into a proactive, value-generating strategy.

CFOs who adopt this approach gain access to real-time, verified ESG data, enabling them to make informed decisions that go beyond compliance. This data empowers them to uncover new opportunities, manage risks effectively, and build trust with stakeholders. Such a forward-thinking stance helps companies stand out as leaders in responsible business practices, attracting investors and customers who value strong ESG performance.

By embedding sustainability into financial decision-making, compliance becomes a seamless part of daily operations rather than a siloed obligation. This shift is especially crucial for aligning with frameworks like ISSB reporting, ensuring that financial and sustainability disclosures complement each other for a comprehensive view.

Key Takeaways for CFOs

Here are some actionable insights for CFOs looking to embrace this transformation:

• Leverage double materiality as a strategic tool: It’s not just about meeting regulations but about integrating financial and sustainability data to gain audit-grade accuracy and streamline assessments.

• Adopt AI-powered automation: Beyond reducing workload, automation enhances data accuracy and ensures readiness for audits, even as regulatory standards like ISSB and CSRD evolve.

• Foster cross-functional collaboration: Breaking down silos between finance, sustainability, and operations teams through integrated platforms creates a unified ESG reporting approach that mirrors the interconnected challenges businesses face today.

• Use technology for strategic insights: Platforms that enable real-time forecasting and impact analysis turn compliance into a tool for identifying risks and opportunities before they affect financial performance.

For CFOs ready to embrace this shift, combining strategic vision, advanced technology, and teamwork lays the groundwork for sustainable growth. This approach not only meets compliance demands but also drives long-term business success in a rapidly changing world.

FAQs

How can CFOs integrate ESG data into financial reporting systems to meet CSRD requirements?

CFOs can simplify the integration of ESG data into financial reporting systems for CSRD compliance by adopting advanced platforms that bring together finance and sustainability data. Tools like neoeco, designed for Financially-integrated Sustainability Management (FiSM), and AI-driven automation can play a key role in consolidating scattered data sources and producing audit-ready disclosures.

For compliance, it’s crucial to use established frameworks such as ESRS, IFRS, and GRI, which offer structured guidelines for data collection and reporting. Ensuring the accuracy of this data is equally important, which involves implementing strong assurance processes - both through internal reviews and external audits. By embracing automation and focusing on real-time insights, CFOs can navigate regulatory requirements more efficiently, improve transparency, and adapt to changing standards with ease.

What are the advantages of using a FiSM platform like neoeco for double materiality assessments over manual methods?

Using a FiSM platform like neoeco makes double materiality assessments much simpler by using AI-powered automation and real-time data integration. This cuts down on manual work, reduces errors, and lowers resource demands. For CFOs, it’s a practical way to meet regulatory requirements like CSRD while staying aligned with global compliance standards.

The platform offers detailed insights into environmental, social, and governance (ESG) impacts, helping organisations make better decisions. With audit-ready ESG disclosures and improved transparency, neoeco takes the hassle out of complex reporting and helps businesses bring finance and sustainability together effortlessly.

How can CFOs effectively engage stakeholders and document processes to meet CSRD requirements with limited resources?

How CFOs Can Meet CSRD Requirements

To align with CSRD requirements, CFOs should prioritise early identification of key stakeholders and maintain thorough records of their interactions. This includes keeping detailed logs of feedback and communication, which not only ensures transparency but also supports audit readiness.

Using FiSM platforms like neoeco can simplify this process significantly. These platforms automate data collection and tracking, easing the burden on limited resources. By integrating finance and sustainability data, they provide accurate, audit-ready disclosures that meet CSRD standards.

For efficient resource management, CFOs should focus on setting clear timelines, implementing strong data management systems, and maintaining open communication with stakeholders. This structured strategy helps achieve compliance while keeping inefficiencies to a minimum.

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• How CSRD Materiality Impacts Financial Risk Management