The Double Materiality Assessment: Key Learnings Through the Process – Part 2

This is the second article in a two-part series on CSRD – see Part 1 here

We expect 2025 to be the year the Corporate Sustainability Reporting Directive (CSRD) makes its way to the top of the sustainability agenda for asset managers and insurers, if it is not already. Many of our clients have already conducted a Double Materiality Assessment (DMA), the critical first step for CSRD, while others plan to do so imminently.

In this article we share our learnings from supporting clients with the DMA, and key questions to consider for those tackling this for the first time.

Articulating what an asset manager or insurer does within its own operations is the easy bit. CSRD forces firms to consider upstream and downstream components of a value chain, which many have not had to explicitly do before.

• What went well? Outlining the key components of the asset manager’s own operating model, leveraging existing policies, disclosures and regulatory filings.
• What was more difficult? Additional complexities lie where there may be multiple entities within a group structure that interact with each other (e.g. delegation of portfolio management). The DMA, and subsequent reporting, should strike a balance between accurately reflecting what the in-scope entity does while telling a coherent story of how it fits into any broader group it may be part of.

Key questions to ask yourself:

• What are the specific activities, products and services offered by the in-scope entity?
• What are the most prominent components of the value chain that enable (upstream) or are affected by (downstream) those activities, products and services?
• How exactly does the in-scope entity interact with any other internal entities, and what are the specific touchpoints between them?

As CSRD is new and so cross-functional in nature, many teams will have to consider sustainability matters of this nature and provide their own views on the potential materiality of topics for the first time.

• What went well? There is undoubtedly a learning curve to overcome, and while there might be some initial hesitancy, we’ve found that once stakeholders have been sufficiently briefed, they are able to contribute meaningful insights to the assessment process from the unique perspective of their teams.
• What was more difficult? The time required to complete follow-ups, and validate and approve the DMA should not be underestimated – ensure you have sufficient contingency built in to project plans for this.

Key questions to ask yourself:

• How might each of the topics and sub-topics within the European Sustainability Reporting Standards (ESRS) impact each of your stakeholder groups specifically? (Concrete examples are always helpful!)
• What resources can you provide teams ahead of time to ensure they are well-prepared to contribute to the assessment?
• How will you provide visibility of the process to senior stakeholders to ensure buy-in from the top?

The DMA seems daunting when tackling it for the first time, given the number of topics and sub-topics to be considered.

• What went well? We’ve found that using a hypothesis-driven approach – starting with the more obvious topics relevant to an asset manager or insurer – can help accelerate that initial progress. It appears most firms are aligning on Climate Change (E1), Own Workforce (S1) and Business Conduct (G1) as being material topics, at a minimum, which may provide ‘80%’ of the answer for many firms and provide solid groundwork for the remaining topics.
• What was more difficult? Determining financial and impact materiality for the remaining, newer topics under the ESRS – particularly where seeking to use a more quantitative, data-driven approach for the DMA.

Key questions to ask yourself:

• Which topics and sub-topics intuitively feel most relevant to you as an asset manager or insurer?
• What data and/or qualitative information do you need to prove or disprove your initial hypothesis?
• Can you leverage any existing methodologies from risk assessment or other relevant processes?

As with all things new, a common challenge is also picturing what the end output will actually look like, and determining appropriate next steps.

• What went well? Creating templates from the beginning – such as a DMA framework to capture the details of the assessment, and a materiality matrix to structure the output – is useful to keep the end result in mind and inform stakeholders what you’re working towards.
• What was more difficult? Remember that the DMA is only the start of the CSRD journey, and whoever is driving the process should keep the bigger picture in mind, including identifying gaps against the ESRS reporting requirements, defining roles and responsibilities for reporting, as well as defining new data and technology requirements.

Key questions to ask yourself:

• What templates can you develop to make the process repeatable, scalable and auditable?
• Who can help compare the ESRS requirements to what you do and don’t have today, and contribute to closing gaps?
• What are the key milestones beyond the DMA completion and what is the right sequencing of activities?

The requirement for limited assurance (which may evolve into reasonable assurance) is a unique characteristic of CSRD that requires careful consideration.

• What went well? Engaging with auditors early, and from a position of strength – with an initial hypothesis and a clear articulation of the approach to be taken. Validating regulatory interpretations with them early, and documenting these.
• What was more difficult? Undertaking the DMA manually – without considering options for technology solutions to enhance the process – or losing track of stakeholder feedback and justifications for the scoring of particular topics.

Key questions to ask yourself:

• What will your auditors expect to see from the process, based on previous experience with them?
• Who is best placed to lead the engagement with auditors, whom has the relationship with them and is sufficiently close to the CSRD program?
• When might be the right time to explore third-party software solutions to streamline the process?

CSRD raises the bar for how asset managers and insurers address sustainability matters, requiring them to consider more topics, in greater depth, across more functions. The complexity of the regulation mean this cannot be treated as just a compliance exercise – keeping the end report in mind, and aligning to broader sustainability ambitions, can offer a strategic opportunity to enhance transparency and drive long-term value creation in a fast evolving sustainability landscape.