Striving towards a healthier, greener planet is crucial in today’s society. By 2050, sea levels are predicted to rise by 4 metres, with temperatures increasing by more than 1.5 degrees. This sea level rise alongside temperature increase poses significant threats to our environment, economies and societies.
What are the risks of climate change?
- Coastal erosion.
- Increased intensity of heatwaves, leading to potential droughts.
- Frequent, long-lasting flooding.
- Disruption to ecosystems.
- Damage to infrastructure.
In light of these issues, corporate companies are under pressure to remain compliant with the latest carbon accounting legislations. Double Materiality Assessments (DMAs) are used to work out risks and opportunities to companies or businesses arising from environmental change. Some reports, such as CSRD, require a DMA within carbon accounts. Therefore, it is also important to conduct a DMA in order to remain compliant with CRSD.
What is a Double Materiality Assessment (DMA)?
A Double Materiality Assessment is a central term to sustainability reporting standards. Large companies carry out DMAs to assess the environment’s impacts, risks, or opportunities affecting the company. Companies are required to assess the following:
· The severity of the risks.
· The likelihood of the risks.
· The impact of the risks on the business.
Companies use scenarios based on climate change to work out the risks posed by the environment to produce a quantitative assessment with precise data to ultimately find solutions to the issues raised.
Who Needs to do a DMA Assessment?
Any company can do a DMA, but the process is more relevant to large corporate companies that fall under specific sustainability reporting standards. For example, if your company has revenues exceeding £25-30 million, it is a mandatory requirement to conduct a DMA. This primarily includes larger EU-Based companies who are required to report on their sustainability efforts, including ESG (environmental, social and governance) factors.
Why is a DMA so important?
A DMA is important to identify risks and opportunities arising from climate change to help businesses move towards sustainability. More specifically DMAs can:
· Identify the risks: Builds on corporate understanding of how climate change, market shifts and different perceptions could impact business operations and finances.
· Uncover opportunities: New markets, products or services which align with environmental change can be discovered and implemented into the DMA.
· Enhance transparency: Builds trust with stakeholders, investors and customers by disclosing risks and opportunities arising from climate change.
· Prepare businesses: Helps prepare businesses for long-term challenges like rising sea levels, extreme weather events, or shifts in consumer behaviour.
Book A Demo
The DMA Process
Typically, companies will take an example scenario and apply it to their company to predict what the risks and opportunities of this factor could look like. For example:
- A milder climate due to rising temperatures could mean lower sales in heaters.
- The reverse of the previous option – an increase in temperatures could lead to rising sales in air conditioning.
- Rising sea levels causing waterside flooding could pose a risk to restaurants located by rivers or coastlines.
These risks can be abbreviated as IROs (impacts, risks, opportunities).
Impacts are categorised by:
· Impact on the business.
· Impact on finance.
· Impact on carbon footprint.
Risks are categorised by:
· Physical Risk – For example, sea level rise or temperature increase.
· Transitional Risk – The changing market or perception towards the product which the company is advertising.
Both risks and opportunities are classified into four categories:
· Scale of the risk/opportunity.
· Scope.
· Irremediability.
· Timescale (e.g short, medium, long).
Companies will apply a score to each of the risks or opportunities to generate a long list, ranging from 50 to 100 IROs depending on the issue raised. This list is cut down into a lower number of the most significant IROs. These IROs are then graded on their scale, scope, irremediability and timescale of the issue and compiled into a shortlist.
It is important for companies to remember that the shortlist is mainly what goes into public disclosure on the report. Therefore, it is crucial to be focusing on what the real risks posed are, rather than listing all possibilities.
Carbon accounting platforms make this process easier by providing an overall assessment score based on the scores given for scale, scope, irremediability and likelihood. The system then condenses the risk into a shortlist for the company to work from to reduce carbon footprint and reach emission goals from the assessment results.
To Summarise…
Carbon platforms can make accounting easier, more time efficient, and effective in a world where global warming is becoming an increasingly critical issue. Double Materiality Assessments are an important tool for companies to address their environmental risks and opportunities. By using carbon platforms, companies can streamline the report process, achieve compliance and make informed decisions to increase their sustainability endeavours.
Corporate companies with a large market following have the platform to drive significant environmental change and fight the climate crisis. By investing in tools such as a DMA, companies can widely contribute to a greener, more sustainable, and brighter future for everyone. By complying with a DMA, companies can make conscientious sustainable differences by easily tracking, analysing and reporting their greenhouse gas emissions.
Why Choose Enistic?
With Enistic, carbon reporting is made easy. As the UK’s #1 Carbon Accounting solution since 2002, Enistic accurately tracks and analyses greenhouse gas emissions. Large companies can identify areas for improvement, set carbon reduction targets, demonstrate commitment to the environment, and disclose carbon emissions. Enistic offers:
- AI driven to simplify compliance.
- Monthly membership, no extra fees.
- 100% guaranteed compliance.
- Centralised carbon reporting.
- Low disruption and faster.
Enistic’s team of experts and consultants can help assess your business’s carbon footprint and develop a comprehensive carbon reduction plan which is tailored to your business’s needs and values. Make a sustainable difference with Enistic and join the movement towards a healthier planet!