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Following the publication of the inaugural European Sustainability Reporting Standards (ESRS), as amended according to the Corporate Sustainability Reporting Directive (referred to as “the CSRD”). The European Financial Reporting Advisory Group (EFRAG) has released a draft implementation guidance for materiality assessment. The materiality assessment is the process by which the undertaking determines material matters and material information to be reported on in its sustainability statement. The performance of an objective materiality assessment is pivotal to sustainability reporting which shall include relevant and faithful information about all impacts, risks, and opportunities (IROs) across environmental, social, and governance matters determined to be material from the impact materiality perspective or the financial materiality perspective or both. The assessment is not limited to the undertaking’s own operations as it also includes its upstream and downstream value chain, as pointed out by the draft. (Figure 1 from the EFRAG’s draft guidance: for illustration only - the dimensions in the graph do not necessarily represent the expected overlap between financial and impact materiality. In many cases there will be a full overlap of both dimensions, according to EFRAG)
GC Insights: EFRAG’s implementation guidance for materiality assessment is crucial for applying double materiality assessment as required under the CSRD. It means that a reporting undertaking shall consider both impact materiality and financial materiality when identifying the material matters, which is the basis for the determination of the material information to be disclosed.