Double materiality assessment process
Stedin, as a public interest company, must comply with the CSRD as of the annual report for the 2024 financial year. One of the requirements is a double materiality assessment. This assessment provides Stedin with insight into the ESG topics for which Stedin has the most positive and negative impact on society (‘inside-out’ analysis) and which topics potentially have the most impact on Stedin’s operations from the outside (‘outside-in’ analysis). The insight generated helps Stedin focus its strategy on those ESG and other topics where the impact made on and by Stedin is greatest, in order to strengthen positive impact and reduce negative impact. Thus allowing Stedin to steer towards long-term value creation. Find out more about this in our value creation model and our impact model or read more about this in ‘Stakeholders and materiality’ where the link to long-term value creation is explained.
Method and assumptions
In 2023, Stedin changed its process and carried out a double materiality assessment to prepare for its CSRD obligation as of the 2024 financial year (see under Process change later in this section). This assessment was carried out in accordance with ESRS 1, chapter 3 'Double materiality as the basis for sustainability disclosures’. For its stakeholder consultation in respect of the 2023 double materiality assessment, Stedin made the assumption that internal senior staff, external stakeholders and the interest organisation can represent the stakeholders. This assumption was made because Stedin regularly has contact with its stakeholders during the year, including in the run-up to its new strategy for 2023-2027. The employees in question underline this. From 2024, the double materiality assessment will become an integral part of the stakeholder dialogues that take place throughout the year.
Process overview
The material topics for 2023 were determined through the following phases:
1. Identification of relevant subjects
The first phase consisted of: desk research; longlisting and consolidation of the subject list. The subjects relevant to Stedin were identified through desk research and internal validation. In addition to analysis of Stedin’s internal documentation (including the 2022 impact measurement outcomes, strategic documents, value creation and business model, stakeholder surveys, risk and opportunity analyses), various international sector-specific and other sustainability standards were consulted. These standards were used as a basis to identify what is expected of Stedin. A picture was also formed of the ESG topics at play, material or otherwise, among peers, in the sector, value chain and in society, with the aid of media analysis and analysis of sector trends. This resulted in a longlist of potentially relevant subjects for Stedin. The subjects were then bundled where possible, to create a structure of main and subthemes that fit well within Stedin’s context.
2. In-depth examination and scoring of subjects
The second phase consisted of the following steps: establishing definitions, impacts, risks and opportunities for each topic and where in the chain they occur, and scoring and assessing subjects based on the defined impacts, risks and opportunities.
In this phase, each topic was defined in the context of Stedin including associated sustainability impacts, risks and opportunities. The opportunities and risks associated with these topics were identified with the aid of the strategic risks and opportunities and supplemented by ESG-specific risks and opportunities defined during the desk research and validation interviews with internal experts and stakeholder representatives. Impact (‘impact materiality’) was then scored for each topic using the criteria ‘likelihood’, ‘magnitude’, ‘intensity’ and ‘irreversibility’ (for negative impact only). Relevant opportunities and risks (‘financial materiality’) were also scored for each topic using the ‘likelihood’ and ‘magnitude’ criteria. In addition to the scores on the factors described above, Stedin’s degree of influence on the impact and financial materiality of the relevant topic was also documented, and the time horizon within which the risks and opportunities in relation to financial materiality occur was considered.
3. Validation and prioritisation
During this phase, the material topics and scoring were validated and stakeholder consultation, peer review and validation by the Board of Management took place. An internal sounding board group at senior management level and the Board of Management validated the themes and their associated scores, and the prioritisation of topics based on these scores, in several sessions. They also assessed the completeness of the subjects on the list.
Validation sessions were then held with each stakeholder representative. The following stakeholder groups were represented: shareholders; industry associations; national government and local and regional authorities; NGOs; grid management sector; regulators; low-use and heavy-use customers; financial stakeholders; groundwork contractors; suppliers; employees and sector market players. For the Biodiversity topic, we collaborated with five infrastructure parties, namely Alliander, Gasunie, Port of Rotterdam Authority, Stedin and Vitens, and engaged the Impact Institute as external experts. The Impact Institute examined indirect, upstream impact through suppliers, and direct impact through land use. The impact of downstream activities is still outside the scope of the current study but is expected to be substantial.
4. Finalising a shortlist and evaluation
In this phase, the proposed list of topics was evaluated and prioritised based on an established threshold value. The Board of Management reached a decision on the list, resulting in seven main topics that are of material importance to Stedin. Finally, the Audit Committee and the Supervisory Board were briefed on the process undertaken and the outcomes.
Because Stedin sees it as its social duty to take responsibility for increasing its positive impact and reducing its negative impact, the threshold has been set such that all topics with a quantified score on impact, risks and opportunities greater than ‘moderate’ are considered material. This threshold results in a wide range of material topics that reflect Stedin’s ambitions. In addition, based on the qualitative validation, which took into account aspects such as strategic relevance and expected future impact, some topics that fell below the threshold according to the quantitative score were added to the final shortlist of material topics.
One reason for this is that Stedin is very active in these particular areas partly with the aim of mitigating risks, which makes the probability of an event with a negative impact low. Examples of such topics include Customer and stakeholder perception and Business ethics, integrity and good governance. These subjects have been added to the final shortlist of material topics, since continuing action in these areas is important for Stedin and its stakeholders. Another example is Biodiversity. The importance of this topic was discussed with the Board of Management despite not yet having all the information to properly assess what and how big the related impacts are. The subject has been added and further research will be carried out in this area following the research mentioned under ‘Validation and prioritisation’.
Process change
The main differences from the materiality assessment carried out in 2022 are:
In 2023, both outside-in and inside-out analyses were performed versus only outside-in in 2022;
In 2023, a detailed inventory was made of potentially relevant subjects, while in 2022, the focus was on reviewing the prioritisation in previously identified topics. The 2023 inventory was performed based on sector-specific international MSCI, GRI, SASB and ESRS standards, sector trends and media analysis, peer review and information from the 2023-2027 strategy-making process that took place in 2022 (including interviews with external stakeholders).
In 2023, both quantitative analysis and qualitative analysis were carried out, while in 2022, the focus was on quantitative analysis. A comprehensive qualitative study was started in 2023, followed by a quantitative analysis based on impact (probability, magnitude, intensity and reversibility), risks and opportunities (probability x impact) and stakeholder consultation based on interviews with internal stakeholder representatives. Finally, a qualitative analysis was carried out based on strategic importance and Stedin’s influence. In 2022, the quantitative analysis was carried out with the aid of a written survey in which representatives of our stakeholder groups were asked to identify, from the existing list of material subjects, what impact these subjects have on their business operations (not about human and environmental impact [‘inside-out’ analysis]).
Next steps
In preparation for the CSRD laws and regulations, Stedin carried out the double materiality assessment in 2023 as described above. The following next steps will be taken to ensure that this assessment becomes an integral part of Stedin’s strategy and communication:
Strategy: assessment of whether sufficient attention and direction is given to the material topics in the strategy. Where necessary, additional strategy and ambitions may/will be adopted.
Policy, action plans, indicators and targets: these will (where necessary) be drawn up and tightened in response to the resulting material topics from the 2023 double materiality assessment.
Reporting and communication: establish the scope of reporting for 2024 in line with the ESRS and preparatory steps in this process.
Governance: review and, where necessary, adjust existing governance structures including decision-making and in-control / management process.
Double materiality assessment process: integration of the process into dynamic stakeholder management during the year alongside process evaluation and review based on expected EFRAG guidelines and integration with existing risk management process.
The results of the 2023 double materiality assessment can be found in the section Stakeholders and materiality. The Connectivity Table shows how the material topics (including their descriptions) correlate to our strategy, risks, KPIs and objectives and the Social Development Goals of the United Nations. The section entitled ‘Stakeholders and interaction with our environment’ focuses on our stakeholders.
