DuringStep Bof thedouble materiality assessment process, organizations mustidentify actual and potential impacts, risks, and opportunities (IROs). The ESRS framework recommends the following methods:
A. The list of sustainability matters in ESRS 1 AR 16✅
ESRS 1 Application Requirement (AR) 16provides acomprehensive reference listof sustainability matters to consider when identifying IROs.
This list includesenvironmental, social, and governance topicsaligned withEU sustainability objectives.
C. Due diligence processes✅
ESRS requires organizations touse due diligence processesto identifynegative sustainability impacts.
Due diligence aligns with frameworks such as theOECD Guidelines for Multinational Enterprisesand theUN Guiding Principles on Business and Human Rights.
This ensures that potentialrisks and opportunitiesare assessed based oninternational sustainability standards.
D. Feedback from stakeholders✅
Stakeholders, includingemployees, suppliers, customers, and affected communities, providecrucial insightsinto sustainability impacts.
ESRSmandates engagement with affected stakeholdersas part of theIRO identification process.
Financial materiality thresholds apply later in the process (Step C)when evaluating thefinancial impact of sustainability matters.
Step Bfocuses only on identifying IROs, makingfinancial thresholds irrelevant at this stage.
Why is B. Financial materiality thresholds❌incorrect?Conclusion:Organizations should usethe ESRS 1 AR 16 sustainability matters list, due diligence processes, and stakeholder feedbacktoidentify IROsin Step B of the double materiality assessment.Financial materiality thresholds do not apply in this step.
Official Commission Delegated Regulation (EU) 2023/2772, various EFRAG guidance documents, and CSRD-related references:
Commission Delegated Regulation (EU) 2023/2772, ESRS 1, AR 16:List of Sustainability Matters for Identifying IROs.
EFRAG Compilation of Explanations (January - July 2024): Confirmation thatdue diligence and stakeholder inputare part ofIRO identification.
