CSRD: Five Things Asset Managers and Insurers Must Get Right in their Double Materiality Assessments – Part One

The Corporate Sustainability Reporting Directive (“CSRD”) significantly expands the sustainability reporting obligations for asset managers, insurers and other in-scope companies. The key first step on the CSRD journey is the Double Materiality Assessment (“DMA”) — considering not only the sustainability matters impacting a company’s financial performance (“financial materiality”) but also how the company impacts the environment and society (“impact materiality”).

For asset managers, the application of CSRD is particularly complex, given the context of their investments as well as their own operations, and the need to ensure a robust yet pragmatic approach in an area with increasing client and regulatory scrutiny.

Based on our recent work supporting clients with CSRD, here are five things to get right when conducting your DMA.

Effective and well-informed stakeholder engagement is critical to the DMA. This should start early, in advance of the assessment itself, with training delivered to all relevant teams to raise awareness. During the DMA, expect multiple rounds of follow-ups, and build sufficient time for this, and for senior validation and sign-off, into project plans.

To succeed:

• Form hypotheses: to provide a starting point for discussions, and focus stakeholder interactions on providing additions from their unique perspectives
• Test hypotheses with data: use existing data, insights and methodologies to test and iterate initial views on materiality
• Engage internal and externally: to challenge and validate hypotheses, broaden the set of perspectives, and build higher confidence in the outcome

The DMA is undoubtedly complex, especially the first time, but pragmatism can keep efforts focused and achievable. In the absence of sector-specific guidance, many firms are focusing on an assessment that can be scaled up in future, and an outcome that tells a credible initial story.

In practice, this means:

• Use the European Sustainability Reporting Standards (“ESRS”): start with the topics, sub-topics and sub-sub-topics in the regulation to come up with an intuitive top-down view on which matters are more likely to be material. Prioritize depth on these topics over breadth across many others
• Build on existing disclosures: use available data and disclosures (such as the Task Force on Climate Related Financial Disclosures – TCFD – or Sustainable Finance Disclosure Regulation – SFDR) for relevant starting points, and align new assessments to industry frameworks such as the Sustainability Accounting Standards Board (“SASB”) or the Global Reporting Initiative (“GRI”)
• Use the transitional provisions: these allow for the delaying or omitting of several disclosure requirements, subject to certain criteria. Make sure you understand these, and consider what is most relevant to report in the initial years, taking into account broader ambitions and positioning on sustainability

For asset managers, investments are likely to be the most material source of sustainability impacts, risks and opportunities. Firms may choose to conduct a DMA focused solely on their investments, separate to their own operations, to ensure they have addressed their entire value chain through the exercise.

Best practices here include:

• Be data-driven: use internal data and tools to drill into your in-scope AUM, analyzing the spread of sectors, geographies and asset classes to help determine a relative view of material topics
• Set thresholds: for many managers, the widespread nature of their investments means that any topic could potentially be material. To keep this manageable, set reasonable thresholds. In the absence of sector-specific guidance and industry examples, it is more important to follow a sensible process with clear rationales and traceability than to worry about a prescriptive approach to follow
• Be consistent with other reporting: you may already describe your position on material environmental, social and governance (“ESG”) topics in existing reporting. These may overlap with the ESRS topics and therefore provide a reasonable hypothesis to be tested in the DMA

The requirement for external assurance on CSRD means rigorous documentation is a must, including on the DMA. The outcome of material topics should be fully traceable, with methodologies, scores, supporting rationales, and any changes clearly documented.

To make this work:

• Create templates: produce a framework for the DMA that can be easily populated and expanded, including materiality definitions and thresholds, scoring mechanisms, and space for supporting rationales and stakeholder commentary
• Communicate frequently: follow up on all stakeholder engagement, whether using workshops, interviews and surveys, with a summary of the inputs and outputs. Keep teams updated with emerging views of material topics and continuously invite feedback and challenge
• Engage with auditors: consider engaging with your auditors early, and from a position of strength, so you are communicating with evidence what has been done

CSRD is too big to be tackled by one team. The breadth of sustainability topics, and their relevance to multiple different functions, mean delivery is only achievable through collective efforts. This requires robust central program management and buy-in from the top.

To achieve this:

• Assign ownership: as part of internal stakeholder engagement, agree dedicated “point-people” to provide perspectives on topics most relevant to their functions, and support with report preparation later down the line
• Leverage group resources: for in-scope entities within a larger group, there may be a dependency on policies and data that live centrally and could provide a helpful starting point for identifying relevant topics or setting materiality thresholds
• Set escalation paths: ensure senior stakeholders are well-briefed on the process being taken, and available for escalation should this be required to prompt more engagement from their teams, or to arbitrate the final validation of the DMA

Remember that the DMA is not a one-off exercise, but an evolving process that requires periodic updates and continuous improvement. Tackling it with a strategic lens and appropriate diligence will make it easier going forward and allow firms to add value beyond just compliance. Meanwhile, as the first wave of reports emerge in 2025, and sector-specific standards are expected in 2026, we will begin to observe trends and comparisons in how firms consider the sustainability matters under CSRD, bringing clarity to a topic that may still currently feel obscure for many.