CSRD and the Double Materiality Imperative

The CSRD entered into force in January 2024, with the first year of reporters to kick-in in 2025 on their 2024 data. Over the next four years, the CSRD require more and more companies to report on their sustainability issues, ultimately impacting an estimated 50,000 companies — including thousands based outside the European Union. This regulation emphasizes double materiality, requiring companies to report on:

• Sustainability impacts: How a company's operations affect the environment and society (environmental, social, and governance - ESG factors).

• Financial materiality: How sustainability issues can pose risks or opportunities for the company's financial performance.

The Black Sun DMA: A Roadmap for CSRD Compliance

The proven Black Sun methodology includes the following stages:

1. Desktop Research: This initial phase involves gathering information from various sources, including industry trends, regulatory requirements, and existing sustainability frameworks.
2. Value Chain Mapping: Companies map their value chain to pinpoint where sustainability issues might arise and how they impact different stages.
3. Stakeholder Engagement: Through interviews, surveys, and workshops, companies gather insights from internal teams (e.g. finance, risk, sustainability) and external stakeholders (e.g. clients, investors, suppliers) to understand their sustainability concerns.
4. Materiality Assessment and Scoring: Based on the gathered information, companies assess and score the identified sustainability issues based on their impact on stakeholders and the company's finances.
5. Final Reporting: The DMA culminates in a comprehensive report that documents the entire process, the identified material issues, and their prioritization based on the scoring.

Unlocking the Benefits of DMA

Beyond ensuring CSRD compliance, a DMA offers a multitude of benefits for companies:

• Enhanced Stakeholder Engagement: The process fosters open communication with stakeholders, leading to a better understanding of their sustainability expectations.

• Strategic Alignment: Learnings from the DMA can be integrated into the company's overall strategy, ensuring sustainability considerations are embedded in decision-making.

• Improved Sustainability Practices: The DMA helps identify gaps in existing sustainability efforts, paving the way for targeted improvements.

• Robust CSRD Reporting: The documented DMA process strengthens CSRD reporting by providing a clear audit trail and justification for the identified material issues.

A Case Study: Ricoh Europe's DMA Journey

Ricoh Europe, a large organization that manufactures and sells printers, copiers, and is increasingly selling digital services and solutions. Headquartered in Japan, it has a significant regional presence in EMEA, and provides a valuable case study for implementing a DMA. Even though not legally required to report in 2025 Ricoh undertook a DMA proactively and to prepare in advance for CSRD reporting. Here are some key takeaways from their experience:

• The DMA unearthed existing good ESG practices that were not actively communicated - for example, their long track-record on circular economy initiatives - this allowed them to leverage these strengths for stakeholder engagement.

• The process fostered internal collaboration and buy-in from senior leadership regarding the company's sustainability efforts.

• Engaging clients during the DMA helped solidify partnerships by showcasing Ricoh's commitment to ESG.

• Valuable lessons learned include involving financial teams early, strategically scheduling stakeholder engagement activities, and planning for ongoing reviews of materiality.

• Early involvement of assurance partners familiar with CSRD is crucial for a smooth future reporting process.

Getting Started with Your DMA

The average DMA takes 3-4 months to complete, depending on the company's size and complexity, although a fast-track version is also possible (2 months). It's recommended to review materiality annually with minor refreshes to capture emerging sustainability trends. 

As companies navigate the CSRD landscape, valuable resources are emerging. Early CSRD reports from various organizations and best practice examples will soon be available to guide others. The decision to conduct a DMA at a group or subsidiary level depends on the specific organization's structure and the potential variations in materiality issues across different entities.

By embracing the DMA process, companies can not only ensure compliance with the CSRD but also unlock a wealth of opportunities to strengthen their sustainability practices, enhance stakeholder engagement, and build a more resilient and future-proof business model. If you would like to speak to one of our experts about starting your DMA process please get in touch with our Head of Business Development, Naomi Hawkins.