Obtaining ESG double materiality assessments (DMAs) is an important—and increasingly mandatory—first step for companies aiming to measure and manage their impacts on society and the environment, while recognising the external risks and opportunities for their own business.

A growing number of companies headquartered, or with significant business, in the EU must now complete DMAs as part of the reporting obligations set out in Europe’s Corporate Sustainability Reporting Directive. But getting the DMA done is only the first step, leaving many businesses wondering how and where to start meeting their sustainability reporting requirements based on this assessment.

The task may seem daunting, but by adopting a step-by-step, structured approach, organisations can get the ball rolling. The key is not to let perfect be the enemy of good, and to get started on the journey as soon as possible.

What is a DMA?

In essence, a double materiality assessment captures both internal and external perspectives when determining the ESG issues that are material to the organisation.

The internal perspective captures the issues material to the organisation’s own operations, strategy and stakeholders. These might include operational risks, resource management, employee well-being, and alignment with corporate values and goals.

The external perspective captures the concerns and expectations of external stakeholders, such as investors, customers, regulators and communities. These might include societal trends, regulatory changes, stakeholder engagement feedback and industry standards.

Conducting a DMA helps organisations enhance transparency, accountability and overall ESG performance. It will also help to focus sustainability reporting in the right areas.

However, it is just the first step on a long journey, and there are a number of factors to consider before moving on to the real work of gathering, analysing, reporting on—and ultimately improving on—sustainability key performance indicators.

Sustainability reporting challenges

Companies need to clear a number of hurdles in order to integrate sustainability reporting successfully into everyday operations:

Data collection complexity. This is perhaps the biggest post-DMA challenge cited by companies right now. There’s no getting around the enormity and complexity of collecting relevant, high-quality ESG-related data from both within the organisation and from external partners and suppliers.

ESG encompasses a wide range of issues, from environmental impact to social equity, each requiring different data types and sources (there are more than 1,000 data points listed in the European Sustainability Reporting Standards. The diversity and complexity of this data can make collection and analysis cumbersome. Additionally, companies may struggle with inconsistent data formats, incomplete datasets, and ensuring the reliability of the information gathered.

Integrating all stakeholder perspectives. Any comprehensive ESG strategy must incorporate the perspectives of a diverse variety of stakeholders, including customers, employees, suppliers and local communities. Aligning these varying interests and concerns with business objectives is challenging: companies need to balance stakeholder expectations with maintaining operational viability and profitability. Transparent communication, active engagement and often complex negotiation will be needed to reconcile different viewpoints.

Resource constraints. Companies typically underestimate the significant human and financial resources required to implement organisation-wide ESG reporting. Today, there are millions of employees engaged in financial reporting; the number engaged in sustainability reporting is probably only in the thousands.

Companies will need to allocate adequate budgets and personnel with the right expertise to sustain long-term ESG strategies. Larger corporates will need to build non-financial reporting teams at least as large as their financial reporting teams. Smaller firms may struggle to attract sufficient expertise affordably, and may do better to call on external help to develop and implement an ESG reporting programme.

Measurement and verification. Measuring the impact of ESG initiatives and verifying the outcomes is complex, especially given the lack of standardised metrics or benchmarking across industries. Nonetheless, companies need to develop clear, measurable indicators of success, which will require third-party audits or certifications, adding to complexity and cost.

Changing regulatory landscape. The regulatory environment around ESG is rapidly evolving, with new laws and standards being introduced regularly. Keeping abreast of these changes and ensuring compliance is a moving target for businesses. Companies need to stay agile and adapt their strategies accordingly.

Integration into business strategy. Once material topics are identified, integrating them into the overall business strategy presents a new set of challenges. It requires a shift from treating ESG issues as peripheral concerns to embedding them into core business operations, decision-making processes and corporate culture.

Engagement and transparency. Stakeholders will come to expect regular updates, clear communication and tangible evidence of progress. Building and sustaining trust requires continuous effort, openness and a commitment to honest reporting, including disclosing setbacks and challenges.

Seven steps to get the ball rolling

The enormity of the post-DMA sustainability reporting task can seem rather daunting. By breaking it down into well-defined, manageable ‘subtasks’, companies can get the ball rolling. Even if it means limiting the scope of a sustainability report initially, it is preferable for companies to report on what they can sooner (while highlighting any areas that need more work), rather than miss the boat completely.

1. Decide on responsibility

Who is responsible for non-financial sustainability reporting? Should it be the chief financial officer or the chief sustainability officer who takes the lead? Financial reporting across large corporates is itself a relatively complex and burdensome task, but it has the benefit of many decades of precedent and tackles only a handful of data points. Ultimately, the CSO/sustainability lead should be responsible for the ESG strategy and governance within the company but, as the ESG reporting/non-financial reporting is part of the annual report, sustainability reporting then should fall under the CFO’s remit.

2. Prioritise material topics and scope

The next step is to identify what is most relevant to the business and its stakeholders—including what is being handled well already and what needs attention—as well as the scope of the reporting process (which geographies, subsidiaries, partners and suppliers are to be included). This involves understanding which issues are most significant from both the impact and financial perspectives. Prioritisation helps focus efforts on the most material issues, ensuring efficient allocation of resources.

3. Begin data collection and analysis

Information related to the company’s chosen ESG topics can come from internal records, industry benchmarks, stakeholder interviews and other relevant sources. The collected data should then be analysed to understand the current impact and performance levels. This phase is critical to establishing a baseline, and identifying gaps between the current state and desired outcomes.

4. Set goals

Based on the analysis, companies need to set clear, measurable and time-bound goals for each priority ESG issue. Goals should be ambitious yet achievable, and aligned with broader industry standards or global frameworks.

5. Implement an action plan

Action plans should outline specific steps, assign responsibilities, allocate resources and set timelines.

6. Monitor and report

Use key performance indicators to measure progress. Results should be reported transparently to stakeholders through sustainability reporting and other channels.

7. Ensure continuous stakeholder engagement

Internal and external stakeholder engagement provides valuable insights, fosters collaboration and builds trust. Internally, this can involve educating and involving employees in ESG initiatives. Externally, it can mean regularly updating investors and other stakeholders on progress and challenges, and seeking their feedback.

Navigating the post-DMA landscape is fraught with challenges, but it pays to remember that it’s a marathon, not a sprint. By following a measured, stepwise approach—starting small if necessary—companies can effectively build on their DMA and integrate sustainability into core operations for the long term.

Pierre Lechat is head of ESG services at TMF Group, a global provider of critical business administration services.