How to get started with the DMA

Involving stakeholders

Before we dive into the different steps of the materiality analysis, you should create your stakeholders in Daato to involve them during the materiality analysis. Stakeholder engagement is highly recommended in the ESRS. It is crucial for accuracy and relevance when assessing impacts and financial materiality. 

For the materiality of impacts, consulting directly affected stakeholders ensures that the real impacts on people and the environment are taken into account. This improves the accuracy of the assessment, verifies sustainability data and strengthens community trust. For financial materiality, engaging users of sustainability reports (investors and regulators) ensures compliance with regulations and alignment of sustainability practices with market expectations, which helps to manage risk and maintain competitiveness.

You can see how to create stakeholders in the software here:  

In the following process steps, we will point out when which stakeholders need to be involved.

Step 1: Determining relevant sustainability topics

The starting point for the materiality assessment is to define the list of relevant sustainability topics for the double materiality analysis. To do this, you identify sustainability topics relevant to your company through research, reviewing competitors' sustainability reports or consulting widely recognised sustainability data providers or standard setters, such as MSCI Materiality Maps or SASB Materiality Finder. It is important that you consider all your own entities and locations as well as all relevant value chain partners, such as suppliers, consumers, etc. 

To support reporting companies, the ESRS (ESRS 1 AR 16) propose a comprehensive list of potentially relevant sustainability topics:

You can also involve relevant stakeholders in this step to provide support. This works via a survey function that allows stakeholders to rate the topics on a scale from very low to very high, while also suggesting topics to be excluded. They can also suggest further company-specific topics. You can see how this works here:

Stakeholders you should involve are as follows:

Internal: 

Own workforce: Provides insights into social factors such as working conditions, equal treatment, opportunities and sustainability issues. 

External: 

Workers in the value chain: Help define environmental and social issues along the value chain, such as material waste, emissions, child labour and forced labour. 

Business partners: Suppliers, distributors and partners provide information on sustainability goals and challenges. 

NGOs: Provide expertise on environmental and social issues that are important to the organisation. 

Affected communities: Share concerns and priorities related to sustainability issues. 

Consumers/end users: Provide feedback on packaging, sustainable products and company practices.

Step 2: Identify IROs

Based on the medium list, impacts, risks and opportunities (IROs) are now identified and assigned to each of the topics. This is the starting point for assessing the impact (inside-out perspective) and financial materiality (outside-in perspective) of the sustainability topics from the previous step. 

When identifying the IROs, their names and descriptions should be as precise as possible so that all stakeholders involved understand the full scope and consequences and can apply the same considerations to the assessment. 

For example, instead of just listing the impact "Contribution to global warming", a company should be more specific and document the impact as "Contribution to global warming from CO2 emissions from steel production in the upstream value chain".

This is how the process works on Daato:

This is how it works:

• Role of the parent company: The parent company assesses the material impacts, risks and opportunities for the entire group, regardless of its structure.
• Approaches:
  • Top-down: the parent company assesses the entire group and consults the subsidiaries on specific issues.
  • Bottom-up: Each subsidiary assesses its own impact and the results are summarised at Group level.
• Consistency and trade-offs: The parent company must balance different severity levels of impacts (e.g. a high severity issue from a small revenue source vs. a medium severity issue from a large revenue source). It must ensure consistent methodologies and thresholds across the group.
• Sector and location considerations: The company should consider common IROs for its sectors and locations and use sector standards to identify and assess these factors.
  
  

In summary, the parent company conducts a materiality analysis for the group, using either a top-down or bottom-up approach, ensures consistency and considers specific sector and location impacts.

To find the right approach for your organisation, Daato suggests first asking yourself the question: "Do we have business activities in our group that are very different from each other, e.g. are different subsidiaries or business units operating in completely different sectors?" 

• If the answer is no, the simplest approach is to perform a "top-down" double materiality analysis, taking into account the opinions of the subsidiaries where helpful.
• If the answer is yes, the simplest approach is to perform separate dual materiality analyses for the different subsidiaries or business units and then aggregate the results.

In the latter case, bear in mind that the scope of the ESRS report, e.g. the relevant disclosure requirements and data points, can be very comprehensive - but not all of them are reportable for all subsidiaries. If certain topics are only material for certain subsidiaries or business units, data on these topics can only be reported by these subsidiaries or business units.

Documentation for audit purposes

An important consideration guiding the entire DMA process: proper documentation. This is an essential element to ensure audit readiness. Here is an overview of the relevant documentation to be presented: