Add the impacts, risks and opportunities relevant for each material topic

Once you are done with the first step of selecting the sustainability matters that are to be assessed in your double materiality assessment, the second step is to identify impacts, risks and opportunities (IROs) for each of these matters.

In step 2, you will find the same category breakdown of E, S and G topics. But once you go in each, it will not be to include or exclude sustainability matters but to add IROs to the ones previously selected. You will already see some IROs added to each sustainability matter. Feel free to make them your own, use them as examples for new ones, and/or remove them from your report if they are not relevant (click on °°° and “delete”)

Impacts refer to your organization’s actions that may affect society and the environment, positively or negatively. They directly define the impact materiality (inside-out perspective) of its associated sustainability matter.

Risks and opportunities refer to externalities that may affect your organization, respectively negatively and positively. They both define the financial materiality (outside-in perspective) of its associated sustainability matter.

Add your own IROs by clicking on “Add impact”, “Add risk” or “Add opportunity” in the last line. A window will appear in which you can enter the title, description and source before confirming the addition. When determining relevant IROs, please note that impacts and risks can also result from measures that have been agreed to deal with other IROs.

Benefit from our sector-specific IRO suggestions or import your own IROs

On Daato, you can also make use of our IRO suggestions or import your own IROs. Here is how it works.

Involve stakeholders

You can also engage your stakeholders in this step by conducting a survey and asking stakeholders to add new IROs or define the relevance of each impact, risk or opportunity that was previously added from very low to very high. There is a more detailed explanation of how this works here.

Click on “Send survey” at the bottom of the screen to start the survey. You then have the option to select which stakeholder to include and specify the due date of your request. 

This is the screen that a stakeholder whose input is relevant for the Own workforce ESRS standard would see:

Once you are done with adding all your IROs, carry on to the assessment of each of them in step 2 by clicking on “complete step” in the top banner.

Assistance with the identification of IROs

The following questions can be helpful in identifying IROs:

• Can our products, services or processes cause harm to people or the environment, or have they caused harm in the past?
• Can our products, services or processes benefit people or the environment or have they done so in the past?
• What natural, human or social resources are we dependent on (e.g. raw materials, qualified employees, relationships with companies, institutions, representatives of society)?
• Are there any events that could lead to us no longer being able to procure these resources at an appropriate price and quality, or at all?
• Have there been any environmental, social or governance events in the past that have had a short, medium or long-term impact on the company (e.g. financial position, liquidity, cash flows, access to finance, cost of capital, financial performance)?
• Will there be such events in the future?

Notes on the identification of IROs:

When identifying IROs, the reporting boundaries with regard to the scope of consolidation must be observed.

When identifying IROs, the entire value chain must be covered. It is therefore advisable to assign the IROs to the stages of the value chain during identification, e.g. according to business operations, upstream value chain and downstream value chain.

• Formulating IROs:
  • The conclusion of the material topics for the sustainability report is based on the identified IROs. The more precisely the IROs are formulated, the easier and more reliable their subsequent assessment and evaluation will be. The following four criteria can be considered when formulating IROs:

• Unambiguous:
  • The impact, risk or opportunity should be formulated in such a way that the nature of the IRO is clearly recognizable. This means that the positive or negative impact on people and the environment or the positive or negative financial impact on the company should be clear from the wording.
  • Example of a risk in the ESRS topic E1 Climate change, adaptation to climate change:
  • “Financial risk as working hours have to be changed or shortened due to extreme weather conditions (heat, heavy rain, etc.), jeopardizing the smooth running of work processes.”

• Differentiated:
  • The impact, risk or opportunity must be formulated in such a way that the relationship to the (sub)topic or company-specific topic is recognizable and distinguishable. The following applies: Only one (sub)topic or company-specific topic per impact, opportunity or risk.
  • Example of a potential negative impact in ESRS topic E4 Biodiversity and ecosystems, impacts on the extent and condition of ecosystems:
  • “Raw material extraction and land consumption/sealing can weaken or destroy ecosystems.”

• Comprehensible:
  • The impact, risk or opportunity should be formulated in an understandable way so that it is comprehensible to all persons involved in the materiality analysis, especially auditors and stakeholders. Abbreviations and technical jargon should be avoided.
  • Example of an actual positive impact in ESRS topic E3 Water and marine resources, water, water consumption:
  • “The use of service water and rainwater contributes to the conservation of water as a resource.”

• Assessable:
  • The wording should be as specific and detailed as possible so that the impact, risk or opportunity can be assessed in the next step (for information on the IRO assessment, see the quick guide to conducting a materiality analysis in accordance with ESRS step 6).
  • Example of a risk in ESRS topic E1 Climate change, climate protection:
  • “Political decisions due to climate change are tightening regulatory requirements for companies. This is accompanied by rising costs that must be incurred in order to meet the new requirements (transition risk).”

Extra notes:

• Measures established to reduce a negative impact are not positive impacts.
• Compliance with laws or regulations is not a positive impact.
• No keywords: A keyword is neither clear nor differentiated, assessable or comprehensible.