ESRS Standard
ESRS Standard
51 The entity shall disclose its process for identifying its Impacts, Risks and Opportunities and analyzing their Materiality.
52 The objective of this disclosure requirement is to provide an understanding of the process by which the entity identifies Impacts, Risks and Opportunities and analyzes their materiality to provide a basis for determining the disclosures in its Sustainability statement (see ESRS 1 Chapter 3 and the related Application Requirements, which set out the requirements and principles for the process for identifying and assessing material Impacts, Risks and Opportunities in accordance with the principle of Double materiality).
53 The entity discloses the following:
(a) An explanation of the methods and assumptions used in the process described.
b) An overview of the process for identifying, assessing, prioritizing and monitoring the company's potential and actual impacts on people and the environment based on the company's due diligence process, including whether and how the process:
i. Focuses on specific activities, business relationships, geographies or other factors that result in an increased risk of adverse impacts.
ii. Takes into account Impacts in which the company is involved through its own activities or Business relationships.
iii. Includes consultations with affected stakeholders to determine how they may be affected, as well as external experts.
iv. Prioritizes negative impacts based on their relative severity and likelihood (see ESRS 1 section 3.4 Impact materiality) and, where appropriate, prioritizes positive impacts based on their relative severity, scope and likelihood, and determines which sustainability aspects are material for reporting (including the qualitative or quantitative thresholds and other criteria used in accordance with ESRS 1 section 3.4 Impact materiality).
c) An overview of the process for identifying, assessing, prioritizing and monitoring Risks and Opportunities that have or may have Financial effects. The disclosures shall include information about the following
i. How the company has considered the links between its Impacts and Dependencies and the Risks and Opportunities that may arise from those Impacts and Dependencies.
ii. How the entity assesses the likelihood, magnitude and nature of the impact of the identified risk and opportunities (e.g. the qualitative or quantitative thresholds and other criteria used in accordance with ESRS 1 Section 3.5 Financial materiality).
iii. How the company prioritizes sustainability Risks compared to other types of Risks, including the use of risk assessment tools.
d) A description of the decision-making process and related internal control procedures.
e) The extent to which and how the process for identifying, assessing and managing Impacts and Risks is incorporated into the entity's overall risk management process and used to assess the entity's overall risk profile and risk management procedures.
f) Where applicable, the extent and manner in which the process for identifying, evaluating and managing opportunities is incorporated into the entity's overall management process.
g) The input parameters used (e.g. data sources, scope of processes covered and the level of detail of assumptions).
h) Whether and how the process has changed from the previous reporting period, when the process was last changed, and the dates of the next materiality analysis reviews.
Application Requirements (AR)
Application Requirements (AR)
There are no specific AR for this disclosure requirement.
Examples from previous practice
Examples from previous practice
Examples serve only as an indication of how a disclosure requirement has been stated by other companies to date. Audited ESRS reports are not yet available. There is no guarantee of accuracy and completeness.
IRO-1 - Description of the process for identifying and assessing the material impacts, risks and opportunities
In 2024, the company carried out the double materiality analysis process in accordance with the European Sustainability Reporting Standards (ESRS). The aim was to develop the most important sustainability topics for the company in accordance with the ESRS standards. The process included creating the Value chain, defining and prioritizing the relevant stakeholders and identifying and assessing Material Impacts, Risks and Opportunities to be considered in the sustainability reporting. A preliminary analysis of existing documents was carried out from March 2024. The starting point for further evaluation was the longlist of potential topics from ESRS 1.
In a first step, a benchmark and peer analysis was carried out in which the sustainability reports and online information of competitors were examined. The results were used to identify potential Impacts, Risks and Opportunities for the company.
The Value chain formed the basis for identifying Impacts, Risks and Opportunities. The upstream and downstream Value chain was analyzed on four levels:
Upstream/Supply chain: examination of the resources and inputs required for the production and operation of core components. These include raw materials, energy sources, equipment and service providers.
Core processes: Analysis of key core competencies to ensure efficient business processes.
Product utilization: Evaluation of the benefits of products and services for end customers and their impact on the market and society.
End-of-life: Examination of the processes and impacts at the end of the products' lives, including disposal and recycling.
In order to ensure completeness and technical expertise, internal company experts were involved in the process.
The Value chain also served as a framework for identifying stakeholders. Both internal and external stakeholder groups along the entire Value chain were taken into account. In accordance with the requirements of the ESRS, both affected stakeholders and Users of the sustainability reports were analyzed.
A workshop was held to validate, identify and in some cases directly assess the potential impacts on the Value chain as well as the company's environmental and social impacts. The workshop was based on a preliminary analysis of potential impacts based on the value chain analysis carried out in 2024.
In accordance with ESRS requirements, various types of impacts were considered, including actual and potential, positive and negative impacts caused or influenced by the business activities along the entire Value chain.
All material impacts were presented in a gross analysis. Impacts were assessed before considering existing strategies, actions and Targets. For each identified Impacts, the section of the Value chain to which it can be assigned was determined. The ESRS list of topics, including subtopics, was used for identification.
The assessment procedure was presented in the workshop and open questions were clarified. A distinction was made between positive and negative Impact materiality and between actual and potential Impacts. The ESRS specify that the severity of impacts (extent, scope, irreversibility) is relevant for actual negative impacts. For positive impacts, the extent and scope are decisive. For potential impacts, the probability of occurrence was also included.
A threshold value of 2.5 was defined in consultation with the Head of Investor Relations and ESG. Sustainability topics from the areas of environment(E1-E5) and governance(G1) were classified as material if they achieved a score of at least 2.5. In the case of potential negative impacts on human rights, severity took precedence over the likelihood of occurrence. Therefore, social impacts(S1-S4) were rated as material if they received a score of 4 or 5 for severity, scope and/or irreversibility.
The assessment was carried out for the short, medium and long-term time horizon. After the first workshop with the ESG team, in which the impacts were identified, validated and assessed, a final review and supplementation of the results took place.
In a follow-up workshop, the financial materiality of the identified Risks and Opportunities was determined. The following factors were taken into account:
Dependencies: (potential) Risks/Opportunities due to dependencies on resources.
Impacts: (potential) Risks/Opportunities due to impacts
Cross-sectional review: Further potential Risks/Opportunities due to external factors (legislation, market, technologies).
The assessment methodology was based on the company's risk management model. A gross analysis was also carried out here, i.e. existing countermeasures to mitigate Risks were not taken into account. The financial impacts of the identified Risks and Opportunities were categorized and assessed in accordance with the LEAP method (Taskforce on Nature-related Financial Disclosures, TNFD) and the Carbon Disclosure Project (CDP). The assessment was also carried out for the short, medium and long-term time horizon.
Stakeholder involvement
Comprehensive stakeholder involvement was carried out to validate the results of the dual materiality analysis. For each material ESRS topic, targeted questionnaires were created for the respective stakeholder groups. The aim was to only confront the respondents with topics relevant to them.
Stakeholders were selected systematically based on the following criteria:
Affectedness: to what extent is the stakeholder group affected by the Impacts of the company's activities?
Interest: What interest does the group show in the company's activities and reports?
Influence: Optional: What influence does the group have on the company?
The prioritized stakeholder groups received specific questionnaires tailored to their relevance and expertise. A total of five questionnaires were developed for four different stakeholder groups:
The survey was primarily quantitative using online questionnaires. The management survey was partly moderated by the CFO, CEO and ESG officers. This strengthened cooperation and built up knowledge. The employees were divided into Germany and Eastern Europe, as certain topics such as Collective bargaining applied specifically to Germany.
The results of the dual materiality analysis were prepared in a management summary for the Executive Board and presented in a meeting. Open questions were discussed and clarified.
Templates
Templates
Materiality process steps
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