The legislative update, through the decree 125/2024, introduces a transformative approach to corporate sustainability reporting by emphasizing the dual materiality principle.
This principle mandates companies to evaluate their impact on sustainability issues (inside-out) and how these issues influence their financial performance (outside-in). The dual materiality approach requires businesses to consider two interconnected perspectives: the impact of their activities on the environment, society, and stakeholders, and the influence of environmental, social, and governance (ESG) factors on their financial outcomes.
This shift is not merely about regulatory compliance but offers an opportunity to rethink business strategies for a sustainable future.
The European sustainability reporting standards (ESRS) provide the framework for this approach, demanding accurate assessment and transparent communication of both impact and financial relevance.
Companies must conduct a structured analysis, often supported by thorough due diligence, to identify and disclose material topics from both perspectives.
The inside-out approach focuses on the company's impact on the world, requiring an evaluation of resource consumption, employee conditions, and community influence.
The ESRS 1 mandates the use of objective criteria and appropriate thresholds to assess the significance of actual and potential impacts based on severity and probability.
Conversely, the outside-in approach examines how external factors like climate change and social dynamics affect the company's ability to generate economic value.
This involves extending traditional financial risk analysis to include ESG factors, assessing their potential impact on profits, competitiveness, and operational continuity.
Companies use quantitative and qualitative thresholds to evaluate financial relevance in terms of performance, financial position, cash flows, and capital access and cost.
Sustainability risks and opportunities are assessed based on their likelihood and potential financial impact over different time horizons.