The Double Materiality Process on Daato

The double materiality assessment process on Daato is based on the ESRS and EFRAG's Implementation Guidance for the Double Materiality assessment. The aim is for companies to be able to assess key topics based on impacts, risks and opportunities and also to survey internal and external stakeholders. The basis is the list of essential topics from ESRS AR 16, but companies can add other company-specific topics. The process leads to a holistic overview of all possible impacts of the company on the environment (inside-out perspective) and of the environment on the company (outside-in perspective).

Step 1: Definition and weighting of relevant stakeholders

Consultation with stakeholders as part of the materiality analysis under the ESRS is essential to gain a thorough understanding of a company's real and potential impact on people and the environment. It makes it possible to capture and demonstrate the relevance and urgency of sustainability matters from the perspective of those affected. This process promotes transparency and helps continuously improve the company's sustainability strategies and goals by ensuring that stakeholder voices are heard and taken into account. Inclusion of stakeholders is not only central to identifying and assessing impacts, but also supports the credibility and acceptance of sustainability reporting.

Daato offers the option of storing internal and external stakeholder groups and individual stakeholders in the tool and assigning them specific sustainability matters and a corresponding weighting. It can also be documented which organization the stakeholders belong to and what relationship they have to the company. All stored stakeholders and groups can then be included in surveys and used to evaluate sustainability matters and impacts, risks and opportunities.

Step 2: From the long list to the medium list - selecting relevant topics

The starting point for the materiality assessment is to define the list of relevant sustainability matters to consider in the double materiality assessment. On Daato, this step is completed in the “Scope” step. By default, Daato displays the list of sustainability topics from ESRS 1 AR 16, categorized within the Environmental, Social and Governance categories and ESRS standards. The user can then mark matters as not relevant using the toggle, leaving a justification. At the same time, company or industry-specific topics can be added.

Step 3: Determining relevant Impacts, Risks and Opportunities

The remaining sustainability matters are then individually assessed and prioritized according to the principle of double materiality from both the perspective of “impact materiality” (inside-out perspective) and from the perspective of “financial materiality” (outside-in perspective).

On Daato, the evaluation takes place in two steps: 

Firstly, relevant impacts, risks and opportunities (IROs) are assigned to the matters that were determined before. Daato provides a suggestion of IROs to be reviewed and complemented by the user.

Secondly, the IROs are evaluated according to the following scoring logic:

Impact Materiality:

When assessing an impact, such as CO2 emissions resulting from resource extraction in the upstream value chain, various details must be specified, such as where this impact is caused (e.g., by the entire company, individual organizational units such as single subsidiaries, or parts of the supply chain), whether it is a positive or negative impact, whether it is an actual or potential impact, whether the impact is associated with human rights violations, and the timeframe.

Based on these details, an evaluation of the scale, scope, irreversibility, and-if applicable-likelihood of occurrence is conducted by the user. Based on the information provided, Daato calculates the materiality level of the impact. 

The calculation works as follows: 

Actual Positive Impact

The materiality of an actual impact is simultaneously its severity. For an actual positive impact, this consists of:

• Scale
• Scope

The calculation works as follows:

Materiality (= Severity) = (Scale + Scope) / 2

The underlying evaluation criteria are as follows:

Actual Negative Impact

The materiality of an actual impact is also its severity. This consists of the following for an actual negative impact:

• Scope
• Scale
• Irreversibility
  
  

The formula for calculating the severity and thus the materiality of an actual negative impact is:

Severity = (Scale + Scope + Irreversibility) / 3

The underlying evaluation criteria are as follows:

Potential Positive Impact

The materiality of a potential impact is supplemented by its likelihood (likelihood). Likelihood and severity are weighted equally.

The severity of a potential positive impact consists of:

• Scale
• Scope

Severity = (Scale + Scope) / 2

The materiality of a potential positive impact is then calculated as follows:

Materiality = (Likelihood + Severity) / 2

The underlying evaluation criteria are as follows:

Potential negative impact

The materiality of a potential impact is supplemented by its likelihood (likelihood). Likelihood and severity are weighted equally.

The severity of a potential negative impact consists of:

• Scale
• Scope
• Irreversibility
  
  

Severity = (Scale + Scope + Irreversibility) / 3

The materiality of a potential negative impact is then calculated as follows:

Materiality = (Likelihood + Severity) / 2

If it is a potential negative impact related to human rights, likelihood has less relevance. Daato uses a weighting of 2:1, thus:

Materiality = (Likelihood + Severity*2) / 2

The underlying evaluation criteria are as follows:

The following questionnaire is used to evaluate the Impacts:

1. Name for the impact you have identified.
2. Please describe the impact and explain how it is connected to your strategy and business model, your company's activities, your business relationships and stakeholders. 
3. Is this a direct impact of the company or any of its subsidiaries or an impact in the value chain? (Select multiple)
   1. Company 
   2. One or more of its subsidiaries 
   3. Value Chain 
4. Depending on answer 
   1. If company – go on with flow
   2. If one or more of its subsidiaries -> Please select which subsidiaries.
   3. If value chain – Please select which part of the value chain: Upstream or Downstream.
5. When needed for a proper understanding of the identified impact, please specify whether it is linked to specific: 
   1. Countries, when there are significant variations of material impact across countries and when presenting the information at a higher level of aggregation would obscure material information about impacts; 
   2. By significant site or by significant asset, when material impacts are highly dependent on a specific location or asset.
6. Have affected stakeholders or their representatives (such as employees or trade unions), along with users of sustainability reporting and other experts, been engaged to identify and assess the material impact, and to provide inputs or feedback on your company's conclusions regarding the identified material impact, and if so, how?
7. Is this a human-rights related impact or not? 
8. Is the impact negative or positive?
9. Is it an actual or potential impact? 
10. Timeframe.
11. Scale. 
    1. What is the scale of the identified impact? 
    2. Please provide your justification of this choice.
12. Scope. 
    1. What is the scope of the identified impact? 
    2. Please provide your justification of this choice.
13. Irremediability. 
    1. To what scale is it possible to return those affected / the environment to a situation that is at least equivalent to the situation before the impact? 
    2. Please provide your justification of this choice.
14. Likelihood of the impact. 
    1. How likely is it that the impact will occur? 
    2. Please provide your justification of this choice.

Overall Calculation of the Materiality of the Sustainability Aspect:

The degree of materiality of the entire topic based on the added impacts is calculated as follows: If at least one impact is very high, then the materiality of the topic is very high. If at least one impact is high and no risk/chance is very high, then the materiality of the topic is high. If at least one impact is moderate and no impact is very high or high, the materiality of the topic is medium. If at least one impact is low and no impact is very high, high, or medium, then the materiality of the topic is low. If all impacts are very low, the materiality of the topic is very low.

Financial Materiality:

When adding a risk or opportunity, such as higher costs due to CO2 pricing, various details must be provided, such as the likelihood of likelihoof and the size of anticipated financial effect. Based on the information provided, Daato calculates the materiality of the risk or opportunity.

Risk / Opportunity

The assessment of severity and thus the degree of materiality of a risk or opportunity results from the addition of the evaluations of likelihood and financial impact, divided by 2.

In this case, the calculation of materiality is: 

Materiality = (Likelihood + Size of anticipated financial effect) / 2

The underlying evaluation criteria are as follows:

The following questionnaire is used to evaluate the Risks / Opportunities:

1. Name for the risk / opportunity you have identified.
2. Is this a risk or an opportunity?
3. Describe the risk / opportunity and explain how it have an influence on your company’s business model, strategy, cash flows, financial performance, financial position and its access to finance and its cost of capital.
4. When needed for a proper understanding of the risk / opportunity, please specify whether it is linked to specific: 
   • Countries, when there are significant variations of material risks and opportunities across countries and when presenting the information at a higher level of aggregation would obscure material information about impacts; 
   • By significant site or by significant asset, when material risks and opportunities are highly dependent on a specific location or asset.
5. Is the defined risk linked to a previously identified impact or dependency?
6. Timeframe.
7. Likelihood of occurrence. 
   • What is the likelihood of occurrence of the risk / opportunity? 
   • Please provide your justification of this choice.
8. Size of the anticipated financial effects. 
   • What is the size of the anticipated financial effects of the identified risk / opportunity? 
   • Please provide your justification of this choice.

Overall Calculation of the Financial Materiality of the Sustainability Aspect:

The degree of materiality of the topic based on the added risks and opportunities is calculated as follows: 

If at least one risk/opportunity is very high, then the materiality of the topic is very high. If at least one risk/opportunity is high and no risk/opportunity is very high, then the materiality of the topic is high. If at least one risk/opportunity is moderate and no risk/opportunity is very high and no risk/opportunity is high, then the materiality of the topic is medium. If at least one risk/opportunity is low and no risk/opportunity is very high and no risk/opportunity is high or medium, then the materiality of the topic is low. If all risks/opportunities are very low, the materiality of the topic is very low.

Step 4: Definition of the Materiality Threshold and Visualization of Results 

In the final step, the results of the assessments are presented in various forms, such as a matrix or an IRO table. Here, the results can also be adjusted again, for example, if justified changes are agreed upon after review of the results at the management level. This is documented for audit purposes.

After setting a company-specific materiality threshold, the result of the materiality analysis is the list of "material topics," commonly referred to as the "short list." This forms the basis for determining the data points to be reported according to the topic-related ESRS.

Who is the report on the Double Materiality Analysis relevant for, and how can it be used?

The report can be used both for audit purposes and internal documentation. It is particularly relevant for:

• Auditors and examiners assessing compliance with regulatory requirements.
• Companies and sustainability officers seeking to ensure transparency on key sustainability topics.
• Investors and stakeholders aiming to better understand a company's sustainability-related risks and opportunities.
• Internal departments such as compliance, strategy, or sustainability, utilizing the analysis for strategic decision-making.

How is rounding done in the IRO assessment?
The assessment is always rounded down. A value of 4.50 is rounded down, while any value from 4.51 and above is rounded up.