Determinants of the Early Adoption of Double Materiality: Evidence From <scp>EU</scp> Companies

ABSTRACT Effective from 2024, Directive (EU) 2022/2464 requires companies in the European Union (EU) to apply the double materiality approach in their sustainability reporting. However, some companies implemented this approach before it became obligatory. The aim of this paper is to identify the determinants of the early adoption of double materiality. To do so, the sample for this study consisted of 185 EU companies that ranked among the top performers in ESG in 2023, based on Refinitiv data as of December 31, 2023, the year preceding the mandatory adoption of double materiality. A logistic regression model was applied considering that of the 185 companies, 79 were early adopters of double materiality in their sustainability reports, and 106 had not yet implemented it (as at the end of 2023). The study results indicate that the early adopters tend to be companies whose reports include a materiality assessment section stating that they have followed the guidelines of the Corporate Social Responsibility Directive. Moreover, the materiality assessment method is described in detail and a materiality matrix is presented. These results may be useful for other companies, which can draw on some of the practices employed by early adopters. These findings are noteworthy because the early adoption of double materiality was voluntary and uncommon, and it was not previously known which reporting practices characterized early adopters.