Double Materiality Assessment (DMA)
The materiality assessment is not a one-time event but rather a structured system to identify potential risks to sustainable business. This includes:
(a) grasping the context
(b) pinpointing actual and potential Impactful Sustainability Matters (IROs) related to sustainability
(c) evaluating and determining the significant IROs related to sustainability
(d) reporting.
The ESRS mandates the inclusion of pertinent and precise information regarding Impactful Sustainability Matters (IROs) across environmental, social, and governance aspects. Materiality assessments, which gauge the importance of sustainability impacts, risks, and opportunities, are pivotal for reporting. Entities must utilize objective criteria, exercise judgment, and offer transparent explanations in their sustainability statements throughout the entire value chain, encompassing upstream, downstream, and internal operations.
Ensuring accuracy in sustainability statements is paramount to conveying the true picture of sustainability-related matters. Moreover, the materiality assessment process holds significant importance, necessitating a comprehensive examination across the entire value chain, encompassing upstream, downstream, and internal operations. Identified material impacts, risks, or opportunities must align with Disclosure Requirements, with entity-specific disclosures filling any gaps left by ESRS coverage. Cross-cutting matters mandated by
ESRS 2 demands adherence, and if information on policies, actions, and targets is absent, it should be explicitly stated.
Flexibility in the materiality assessment process allows for tailored approaches, relying on the discretion of the undertaking to accommodate its unique circumstances. Recommended practices for the assessment include understanding the contextual landscape, pinpointing Impactful Sustainability Matters (IROs), evaluating their significance, and ultimately reporting them accurately. Stakeholder engagement is integral to this process, ensuring alignment with international due diligence standards.
Material impacts are evaluated based on their severity and likelihood, with predefined quantitative or qualitative thresholds guiding reporting decisions. The due diligence process aids in identifying and evaluating negative impacts, considering their severity and likelihood, thereby facilitating comprehensive reporting. Entities adhering to ESRS standards are expected to identify sustainability-related information on risks and opportunities as per ISSB Standards, integrating this assessment into their business model, strategy, and governance framework. Over time, it's anticipated that for most material impacts, significant risks or opportunities will emerge, reinforcing the ongoing nature of sustainability assessment and reporting within organizations.
Data Collection Model
Data collection is indispensable in asset management for sustainability control as it serves as the foundation for informed decision-making and effective monitoring of environmental, social, and governance data. By systematically gathering and analyzing relevant data on resource consumption, emissions, social impacts, and governance practices, asset managers can identify areas for improvement, track progress towards sustainability goals, and mitigate risks associated with unsustainable practices.
Moreover, robust data collection enables asset managers to demonstrate accountability to stakeholders, including investors, regulators, and the broader community, by providing transparent and reliable information on their sustainability performance. Ultimately, data-driven insights empower asset managers to optimize resource allocation, enhance operational efficiency, and drive long-term value creation while aligning investment strategies with environmental and social responsibility objectives.
Timing
In terms of timing, EFRAG outlined its schedule for upcoming tasks within the Sustainability Reporting Board:
For guidance on Value Chain and Materiality Assessment:
- A draft version will be approved by the end of 2023, followed by a 30-day public feedback period. Final versions are expected by January 2024.
- Regarding ESRS for listed SMEs (LSME) and Voluntary ESRS for non-listed SMEs (VSME):
- An Exposure Draft will undergo a 4-month public consultation starting in January 2024, with technical advice submitted to the EC in November 2024.
On sector-specific ESRS:
- The EC postponed the deadline for adopting sector-specific standards to June 2026 and clarified that EFRAG isn't expected to finalize 40 standards by then.
- EFRAG will prioritize developing standards for a general approach to sector-ESRS, sector-classification ESRS, and 2 high-impact sectors (likely Oil & Gas + Mining), with possibly two more sectors expected in the first half of 2024.
For ESRS in the financial sector:
- The nominations committee is still selecting members for the Advisory Panel.
- Work on developing value chain guidance for the financial sector is expected to commence by the end of 2023, with drafting beginning in the second half of 2024.
- Regarding ESRS for non-EU groups:
- The EC extended the adoption deadline to June 2026.
- An Exposure Draft will be issued for public consultation by Q4-2024/Q1-2025.
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