ESG Reporting and Metrics: From Double Materiality to Key Performance Indicators

This article conceptualises the link between firms’ value chains and distribution networks and the requirements for double-materiality assessments in contemporary reporting regulations worldwide. The new European Sustainability Reporting Standards (ESRS) and the standards for sustainability reporting issued by the International Sustainability Standards Board (ISSB), called IFRS S1 and IFRS S2, require companies to report their own direct (scope 1) and indirect (scope 2) greenhouse gas (GHG) emissions as well as GHG emissions in their value chains and distribution networks (both scope 3). However, GHG emissions comprise just one dimension of information that is relevant to understand when assessing, managing and reporting the footprints and impacts of a firm and are, therefore, only a fraction of the key performance indicators (KPIs) related to ESG that should be disclosed. Through a case study, this article demonstrates the connection between a due diligence analysis of a firm’s value chains and distribution networks; an analysis of the competitive parameters of its business model; the identified impacts, risks and opportunities; and the double-materiality perspective. The double-materiality perspective prioritises actions based on probability and significance, creating a natural space to identify KPIs. The implication of this study is that firms can be assisted in identifying relevant KPIs based on double-materiality assessments aided by applying the REGS model because it guides firms in choosing the most relevant KPIs.