Implementing the Corporate Sustainability Reporting Directive (CSRD) introduces several key terms critical to modern sustainability reporting.
According to Greenomy, among these, Double Materiality Assessment (DMA), Impacts, Risks, and Opportunities (IROs), European Sustainability Reporting Standards (ESRS), and Gap Analysis are pivotal. IROs are especially central to the DMA within the CSRD framework, aiding in understanding both how businesses impact society and the environment and how sustainability considerations influence the business itself.
IROs do not merely contribute to understanding sustainability impacts; they define the very structure of a company’s CSRD reporting. By identifying which IROs are material, companies can tailor ESRS and Disclosure Requirements to their specific needs. This customisation reduces unnecessary reporting burdens by eliminating irrelevant disclosure requirements, thereby streamlining the compliance process.
At the outset of the CSRD reporting process, companies engage in a Double Materiality Assessment. This involves determining which sustainability matters significantly impact the environment and society (Impact Materiality) and which could influence the company’s financial scenarios (Financial Materiality). The DMA thus provides a dual lens to assess both the company’s external impacts and the internal effects of external sustainability factors.
Environmental, Social, and Governance (ESG) topics are thoroughly mapped during the DMA process, identifying material impacts, risks, and opportunities. These IROs linked to sustainability matters form the foundation of the company’s strategic approach to CSRD reporting. The identification and assessment of these IROs across the value chain—from suppliers to customers—ensure a comprehensive evaluation of the company’s sustainability footprint.
To determine the materiality of IROs, companies must perform due diligence to identify, prevent, mitigate, and account for their potential or actual impacts on society and the environment. The assessment of financial materiality then evaluates the likelihood and potential magnitude of sustainability matters affecting financial outcomes. Companies must then apply thresholds to prioritise these IROs, a process requiring strategic stakeholder involvement to ensure a justified and transparent classification of material matters.
Keep up with all the latest FinTech news here.
Copyright © 2024 FinTech Global
