5.3 Material sustainability matters
5.3.1 Double materiality assessment process
Longlist of relevant sustainability matters
The double materiality assessment (DMA) was prepared and carried out by the aforementioned core project team and the Board of Directors, supported by an external professional party. Relevant sustainability matters, including actual and potential matters, were identified through the value chain analysis of Nedap's solutions. The objective of this analysis was to form a comprehensive understanding of Nedap's value chain, identify affected stakeholders and link ESG issues to stakeholder positions in the value chain. This analysis helped pinpoint where sustainability matters are likely to arise based on the nature of activities, business relationships, geographies or other risk factors. This resulted in a comprehensive list of sustainability matters for internal use and for external reporting.
In addition, we analyzed industry peers and reporting frameworks. We conducted desktop research on peers (e.g., Adapcare, Tagmaster, Eta-plus, Allflex, Checkpoint, Genetec, Protime), regulatory and normative ESG frameworks and internal Nedap documents (e.g., risk register, strategy documents). Finally, we conducted a media analysis to incorporate external stakeholder perspectives with a focus on identifying any issues or risks related to Nedap's products and services.
We used these inputs to create a longlist of sustainability matters. From there, we grouped these matters by plotting them against the ESRS sub-sub-topics listed in the ESRS. Several topics correspond with ESRS sub-sub-topics and others with sub-topics. We did not identify any sustainability matters that correspond with the environmental ESRS topics Water and marine resources (E3) and Biodiversity and ecosystems (E4). Therefore, we added these topics to our longlist to be scored, with which we took the related paragraphs mentioned in Appendix C of ESRS 2 into consideration. Several sustainability matters could not be plotted against any of the ESRS topics and for this reason, we added the Nedap-specific topics Technology, Food and Health.
Assessing the impacts, risks and opportunities
We assessed the negative impacts, positive impacts, financial risks and financial opportunities related to each sustainability matter on the longlist. These are GHG emissions, climate-related physical risks, climate-related transition risks, resource inflows, resource outflows and waste. The scores were assigned based on various variables and accompanied by rationales, with climate-related scenario analyses informing the process. The external professional party provided tooling to perform the scoring, and after scoring, provided us with feedback on the initial scoring.
For the rating of the impacts, risks and opportunities (IROs), we categorized the sustainability matters into environmental, social, governance and Nedap-specific categories. Internal experts and business unit representatives, serving as proxies for our external stakeholders, held sessions to score each sustainability matter on the longlist, assigning a weight based on the factors defined in the ESRS (details can be found in subsection 5.10.1 of the Sustainability notes). In addition, a session took place with the Supervisory Board to discuss the approach and the potential IROs, collect additional insights and sharpen our rationales. The sustainability matters on the longlist were scored on negative impact, positive impact, risk and opportunity, independent of the outcome of each individual scoring. The risks identified in the assessment are incorporated into the overall risk assessment process of Nedap and subsequently prioritized.
The core project team determined the materiality thresholds for negative impacts, positive impacts and financial risks and opportunities, selecting the median score for both severity and likelihood. Financial opportunities on average received higher scores for magnitude. We therefore raised the materiality threshold for financial opportunities by selecting a higher magnitude score, while maintaining the likelihood score set for the other sustainability matters. We will repeat this process annually to keep all IROs up to date. Please refer to the subsection Nedap Risk Management Framework of section 3.2 Risk management & internal controls, which we incorporate by reference, for information on how sustainability risks and control systems are embedded in our strategy and business model.
5.3.2 Material impacts, risks and opportunities
The core project team evaluated the initial results of the assessment, concluding that most topics that exceeded the materiality threshold are a logical result of our operations and business activities. For several other topics, this was not the case, requiring additional discussions within the core project team and the Board of Directors. The decision was made to reconsider the scoring of these topics. The process and final results were shared and discussed with the Board of Directors, which approved the DMA and the results.
Multiple stakeholders were approached to validate and discuss the results. Our CFO shared the results in bilateral meetings with investors and shareholders and at the annual general meeting. Within the business units, the results were discussed with various (key) accounts. The formats of these discussions varied from email conversations and one-on-one meetings to presentations held at partner or customer days. Overall, these conversations confirmed that we are focusing on the right sustainability matters and that we are not omitting any relevant topics.
The table below shows the results of the DMA, including the material sustainability matters by category and their relevant position in the value chain. It indicates that most topics are material from multiple perspectives and represent various positions in the value chain.
|
ESG |
Material topic |
Boundary |
Description |
Impact / financial materiality |
Timeline |
|---|---|---|---|---|---|
|
E |
E1 - Climate change mitigation & energy |
Upstream / |
We are taking action to reduce GHG emissions within our operations and the supply chain, such as maximizing our use of renewable energy and working with our business partners and end-consumers to reduce energy consumption. In doing so, we mitigate the risk that Nedap loses its relevance to stakeholders while pursuing opportunities to help combat climate change. |
NegImp / Risk / Opp |
S / M / L |
|
E5 - Resource outflows related to products |
Own operations / |
Waste in the value chain from the products we sell negatively impacts the environment. Upcoming regulations around design and circularity could pose a risk to our business. Therefore, our outflow of products is considered both a material negative impact and material risk. |
NegImp / Risk |
M / L |
|
|
S |
S1 - Diversity |
Own operations |
Failing to foster a diverse, equitable and inclusive working environment negatively impacts our workforce and poses a risk of losing well-qualified workers or not being able to attract new people due to reputational damage. |
NegImp / Risk |
S / M |
|
S1 - Training and skill development |
Own operations |
Keeping up the knowledge of our workforce is a must. Failing to do so could lead to losing our competitive advantage. |
Risk |
S / M |
|
|
S4 – Privacy and data security (information-related impacts for consumers and/or end-users) |
Own operations / |
We consistently process sensitive data. We therefore need to maintain a high level of information security to prevent negative impacts for end-users. Our risk awareness and high standards positively impact end-users. Failing to comply with legal and regulatory requirements could result in regulatory fines or reputational damage. |
NegImp / Risk |
S / M / L |
|
|
G |
G1 - Corporate culture & transparency |
Own operations |
Creating and maintaining our corporate culture of transparency, open communication and trust will positively impact people across the value chain. Negative impacts result from a lack of transparency or the perception thereof. There is also a risk of increasing legislation conflicting with our open culture, limiting people in how they work and potentially leading to employee turnover. Additionally, insufficient transparency, particularly in areas such as sustainability, may result in stakeholder disengagement in the coming years. |
NegImp / PosImp / Risk |
S / M |
|
G1 - Management of relationships with suppliers |
Upstream |
Maintaining good relationships with parties in our supply chain enhances our ability to achieve our sustainability targets. Insufficient monitoring and verification of supplier compliance with legislation and alignment with our norms and values could lead to supply chain disruptions, significantly impacting stakeholders. Non-compliance with environmental or social legislation or engaging with unreliable suppliers may exacerbate these impacts, particularly for single-source components or products, where alternatives are limited. |
NegImp |
S / M |
We elaborate on these material IROs in the respective topical sections. In these sections, we disclose how material negative and positive impacts affect, or are likely to affect, people or the environment. Additionally, we disclose how these impacts are connected to our strategy or business model and specifically how they originate from our activities.
We have determined that our current strategy and business model facilitate the effective management of our IROs and that no amendments are required at this stage. Currently, we do not observe financial effects related to our IROs, nor a significant risk of a material adjustment next year. We also do not anticipate significant short-, medium- or long-term impacts on our financial position, financial performance or cashflow, other than the OpEx and CapEx required to remediate the identified IROs. Where this is the case, this is disclosed in the topical sections of this Sustainability statement.
During this reporting period, we conducted a resilience analysis to evaluate the implications of climate change for Nedap's business strategy and model, and to assess Nedap's capacity to adapt to transition risks over the short, medium and long term. This resilience analysis complements our existing practices. We specifically focused on our alignment with and preparedness for a low GHG emissions scenario consistent with limiting global warming to below 2°C. This scenario involves significant actions to curb GHG emissions. We chose this scenario because of our long-standing commitment to achieving net-zero Scope 1 and 2 GHG emissions, which is aligned with the Paris Agreement. In our analysis, we focused on the regions in which we operate and where our customers are predominantly located. The Nedap Campus in Groenlo, the Netherlands, represents the biggest impact.
We have identified the following main risks of not adhering to our existing GHG emissions reduction commitments:
Reputation risk: There is potential for reputational damage if Nedap's practices do not align with the sustainability goals we communicate.
Value chain influence: Our ability to mitigate climate risks diminishes as we move further up and down the value chain due to the collaboration required with suppliers, customers and other stakeholders to drive progress.
Nedap already has measures in place to mitigate risks and has identified additional actions to be implemented. Nedap is committed to contributing to the transition toward a low-carbon, climate-resilient economy. By fostering behavioral change and investing in innovative solutions, such as renewable energy initiatives, we aim to drive sustainable growth both locally and globally. This commitment aligns with our mission to create value for our organization, stakeholders and society through responsible business practices.
Nedap believes it has a strong strategy and business model, which are resilient enough to address the identified impacts and risks and seize opportunities over the timelines mentioned.
5.3.3 List of disclosure requirements
We have listed the ESRS disclosure requirements covered in this Sustainability statement in subsection 5.10.2 References in section 5.10 Sustainability notes. These disclosure requirements cover all IROs as determined through the DMA. We use an entity-specific metric when disclosing information about the IROs related to Privacy and Data Security.