Curious about Actual GRI Certifications (ESRS-Professional) Exam Questions?

Correct : B

Under the European Sustainability Reporting Standards (ESRS), organizations can leverage their ongoing dialogue with stakeholders for the materiality assessment. The ESRS explicitly acknowledges that stakeholder engagement plays a fundamental role in assessing material impacts, risks, and opportunities.

Stakeholder Engagement is Central to Materiality Assessment

ESRS 1 and ESRS 2 emphasize that organizations should integrate stakeholder perspectives into their materiality assessments. Engagement with affected stakeholders is central to the undertaking's ongoing due diligence process and sustainability materiality assessment. This includes processes to identify and assess actual and potential negative impacts, which inform the identification of material sustainability topics.

ESRS Does Not Mandate a Specific Stakeholder Engagement Approach

While stakeholder input is considered valuable, the ESRS does not prescribe a mandatory format or behavior for engagement. Companies have flexibility in determining how they engage with stakeholders.

IG 1 Materiality Assessment FAQ 15 states: 'The ESRS require disclosure on the materiality assessment and its outcomes but do not mandate specific behavior on stakeholder engagement or the due diligence process.'.

Stakeholders Can Provide Objective Evidence

The materiality assessment should be based as much as possible on objective data and evidence, but stakeholder perspectives can be a source of supporting evidence for impact materiality.

The relevance of stakeholder input depends on how much they are affected by an organization's activities (severity and likelihood of impacts).

Due Diligence and Materiality Assessment

The due diligence process includes stakeholder engagement, which informs the materiality assessment. Organizations must report how they integrate stakeholder feedback into identifying and assessing material issues.

Nature as a Silent Stakeholder

The ESRS even recognizes that ecological data and conservation indicators should be considered as proxy indicators for stakeholder engagement where human stakeholders are absent (e.g., in cases of biodiversity impact assessments).

Thus, the statement in the question is false. Organizations are encouraged to utilize their existing stakeholder engagement mechanisms to inform their materiality assessments under ESRS.

Official Reference:

Commission Delegated Regulation (EU) 2023/2772.

Compilation Explanations January - November 2024.

ESRS 1 & 2 Guidelines on Double Materiality.

Correct : C

Under the ESRS, engagement with affected stakeholders is a core element of due diligence. The outcome of the due diligence process informs the materiality assessment. The ESRS encourage further engagement with stakeholders to collect their input and feedback on the organization's conclusions regarding the material impacts, risks, and opportunities.

This sequence is supported by the official text of Commission Delegated Regulation (EU) 2023/2772 and various ESRS-related documents. The standard emphasizes due diligence as a starting point for the materiality assessment process. The assessment then determines the organization's material impacts, risks, and opportunities, which is crucial for effective stakeholder engagement.

Due Diligence: The ESRS process starts with due diligence, as outlined in the Commission Delegated Regulation (EU) 2023/2772, to identify relevant sustainability matters and affected stakeholders.

Materiality Assessment: The findings from the due diligence process are then used to inform the materiality assessment, as discussed in EFRAG's guidance documents.

Material Impacts, Risks, and Opportunities: Finally, the organization engages with stakeholders to review and refine its conclusions about material impacts, risks, and opportunities, as per the ESRS requirements.

Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU

EFRAG Guidance on Materiality Assessment in ESRS

ESRS Due Diligence Framework, as outlined in Compilation Explanations and Mapping Sustainability Matters with Disclosure Requirements

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Correct : C

According to the European Sustainability Reporting Standards (ESRS) under the Commission Delegated Regulation (EU) 2023/2772, stakeholders are defined as individuals or groups who can affect or be affected by the undertaking. The ESRS distinguishes between two main groups of stakeholders:

Affected stakeholders: These are individuals or groups whose interests are affected or could be affected -- positively or negatively -- by the undertaking's activities and its direct and indirect business relationships across its value chain.

Users of sustainability statements: These include primary users of general-purpose financial reporting (e.g., existing and potential investors, lenders, and other creditors such as asset managers, credit institutions, and insurance undertakings) and other users, including the undertaking's business partners, trade unions, social partners, civil society and non-governmental organizations, governments, analysts, and academics.

Furthermore, engagement with affected stakeholders is a crucial aspect of the undertaking's ongoing due diligence process and sustainability materiality assessment. This involves identifying and assessing actual and potential negative impacts to inform the materiality assessment process for sustainability reporting.

Official Reference:

Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU on sustainability reporting standards.

ESRS 1: General Requirements, Section 3.1 (Stakeholders and their relevance to the materiality assessment process).

Correct : B

ESRS 2 IRO-1 requires organizations to disclose their process for identifying impacts, risks, and opportunities and assess their materiality. This includes detailing whether and how affected stakeholders were consulted during the process. Since risks and opportunities typically stem from impacts, the process of impact materiality assessment serves as a natural starting point before evaluating their financial materiality.

Identification of Impacts, Risks, and Opportunities (IROs):

Organizations must disclose their methodology for identifying material impacts, risks, and opportunities.

These include both actual and potential impacts on people and the environment, considering short-, medium-, and long-term horizons.

Consultation with Affected Stakeholders:

ESRS 2 IRO-1 requires disclosure of whether and how the consultation with affected stakeholders influenced the identification of material sustainability matters.

Stakeholder engagement is crucial in determining the scope and severity of sustainability impacts.

Role of Impact Materiality:

Impact materiality assessment precedes the evaluation of risks and opportunities.

Since most risks and opportunities originate from impacts, impact materiality serves as the starting point for assessing their financial materiality.

Financial Materiality Evaluation:

Financial materiality pertains to the extent that a sustainability matter affects the undertaking's financial position, performance, cash flows, or cost of capital.

It evaluates whether an impact or risk could reasonably be expected to have a material financial effect on the organization.

Why is B the Correct Answer?

'Impacts, risks, and opportunities' correctly defines the scope of ESRS 2 IRO-1.

'Affected stakeholders' are explicitly referenced as a crucial element in the disclosure process.

'Risks and opportunities' emerge from sustainability impacts, making impact materiality the logical starting point.

'Financial materiality' is the final step, determining the financial significance of sustainability risks and opportunities.

Thus, the correct sequence is B: impacts, risks, and opportunities; affected stakeholders; risks and opportunities; financial materiality.

Official Commission Delegated Regulation (EU) 2023/2772, various EFRAG guidance documents, and CSRD-related references:

Commission Delegated Regulation (EU) 2023/2772, Annex I: ESRS 2 IRO-1 materiality assessment requirements.

EFRAG Compilation of Explanations (January - November 2024): Explanation of ESRS 2 IRO-1 and its link to impact materiality.

Correct : A, B, C

The double materiality assessment process consists of multiple steps, with Step A: Understanding the Context focusing on setting the groundwork for identifying material impacts, risks, and opportunities (IROs).

Step A includes:

Mapping the organization's value chain (Option A)

This step involves identifying all elements of the organization's value chain, including suppliers, distributors, and business partners, to understand where sustainability impacts occur.

It helps in pinpointing potential sustainability matters, risks, and opportunities related to both impact and financial materiality.

Engaging with affected stakeholders to gather input (Option B)

Stakeholder engagement is a critical part of the materiality assessment as it informs the organization about direct and indirect sustainability impacts.

The ESRS guidance stresses that businesses must engage with affected stakeholders (e.g., employees, communities, consumers) and sustainability experts as part of the due diligence process.

Analyzing the legal and regulatory landscape (Option C)

Organizations must review applicable laws, regulatory frameworks, and international sustainability commitments that may affect their sustainability reporting obligations.

This ensures compliance with EU regulations (CSRD, ESRS, Taxonomy Regulation, SFDR) and other relevant legal requirements.

Incorrect Answer: