Pass the GRI Sustainability Professionals ESRS-Professional Questions and answers with ExamsMirror

Understanding Impact and Financial Materiality under ESRSTheESRS frameworkis based ondouble materiality, which comprises:

Impact Materiality– This relates to the organization’s potentialpositive or negative impactson people or the environment, irrespective of whether these impacts translate into financial effects​.

Financial Materiality– This refers to sustainability matters thataffect the company's financial position, including risks and opportunities that influence financial outcomes over theshort, medium, or long term​.

(A) False:A sustainability topic can be materialeven if it does not directly affect financial performance; it may still beimpact material​.

(D) False:Impact and financial materiality are equally importantunder ESRS. Neither is prioritized over the other​.

(E) False:TheESRS process generally begins with impact materiality, not financial materiality​.

Commission Delegated Regulation (EU) 2023/2772, Section 3.3 on Double Materiality​

EFRAG Materiality Guidance on ESRS, which provides methodologies for assessing impact and financial materiality​

Why the other options are incorrect:References:

The European Sustainability Reporting Standards (ESRS) categorize stakeholders intotwo main groups:

Affected Stakeholders:

These are individuals or groups whose interests are affected (positively or negatively) by the undertaking’s activities and business relationships across its value chain.

Examples include workers (own workforce and those in the value chain), affected communities, consumers, and end-users.

The identification of affected stakeholders plays a crucial role in an organization’s sustainability due diligence and materiality assessment processes.

Users of Sustainability Statements:

These are primary users of sustainability disclosures, including investors, lenders, and other creditors.

Additional users include business partners, trade unions, civil society organizations, non-governmental organizations (NGOs), governments, analysts, and academics.

The ESRS framework emphasizes the importance ofengagement with affected stakeholdersas part of an undertaking’s due diligence and materiality assessment process, ensuring that material impacts, risks, and opportunities are adequately identified and reported​.

Official References:

Commission Delegated Regulation (EU) 2023/2772, ESRS 1, Section 3.1- Defines the two main groups of stakeholders​.

ESRS 2 SBM-2 (Interests and Views of Stakeholders)- Covers how affected stakeholders' views inform an undertaking’s strategy​.

EFRAG Guidance on Stakeholder Engagement and Double Materiality- Reinforces the role of affected stakeholders in sustainability assessments​.

TheCorporate Sustainability Reporting Directive (CSRD)includes specificreporting mandatesthat organizations must comply with. Below is an evaluation of each option:

A. True– The CSRD requires organizations to conduct adouble materiality assessment, considering bothfinancial materiality(impact on the company’s financial position) andimpact materiality(the company’s impact on the environment and society)​.

B. True– Organizations reporting under the CSRD mustfollow a specific reporting format, which includes structured disclosures usingEuropean Sustainability Reporting Standards (ESRS)​.

C. False– The CSRDapplies to both EU and non-EU companiesthat have operations in the EU and meet the reporting threshold criteria. Non-EU companies generatingmore than €150 millionin annual turnover in the EU and having at leastone EU-based subsidiary or branchare subject to CSRD requirements​.

D. True– The CSRD isinterlinked with other EU legislation, including theEU Taxonomy Regulationand theSustainable Finance Disclosure Regulation (SFDR), ensuring companies align with broader EU sustainability goals​.

E. False– Organizations must report onvalue chain informationas part of theimpact, risk, and opportunity (IRO) management processwithin the ESRS framework​.

F. False– The CSRD mandatesexternal assurancefor sustainability reports, starting withlimited assuranceand progressing towardreasonable assurancein the coming years​.

Commission Delegated Regulation (EU) 2023/2772, Sections onDouble Materiality, Reporting Format, and Value Chain Information​.

EU Taxonomy Regulation & SFDR– Linkages with CSRD​.

Official References:

Nature is indeed recognized as a "silent stakeholder" in the European Sustainability Reporting Standards (ESRS). This term implies that, although nature cannot actively voice its concerns, it remains a critical component of sustainability reporting due to its fundamental role in sustaining life and economic activity. ESRS emphasizes that organizations must consider their impacts on nature, ecosystems, and biodiversity as part of their sustainability disclosures.

This recognition aligns with the concept ofdouble materialityembedded in the ESRS framework, which considers both the financial impact on an organization and the organization's impact on environmental and social matters. The ESRS explicitly integratesbiodiversity and ecosystems (ESRS E4)as a key topic, reflecting the need to account for the effects of business activities on nature, even if nature itself cannot actively advocate for protection.

Thesilent stakeholderconcept reinforces theduty of carethat organizations hold in assessing and mitigating their impacts on biodiversity, land use, pollution, and natural resources. This aligns with theUnited Nations Sustainable Development Goals (SDGs)and theEU Biodiversity Strategy for 2030, both of which emphasize the protection and restoration of natural ecosystems​.

Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023(ESRS E4 - Biodiversity and Ecosystems)​.

EFRAG Guidance on Stakeholder Engagement– Highlights nature as an affected stakeholder in sustainability matters​.

EU Biodiversity Strategy for 2030– Emphasizes that economic activities must integrate ecosystem preservation and restoration​.

Official References:This confirms that the statement istrueunder ESRS standards.

Across-departmental taskforceis crucial forCorporate Sustainability Reporting Directive (CSRD) complianceas it enables an organization tocoordinate sustainability reporting efforts effectively.

Key responsibilities of the taskforce include:

Ensuring alignment across departments(e.g., Finance, Compliance, Legal, ESG, and Operations) togather accurate sustainability data.

Meeting reporting timelinesrequired underESRS and CSRD regulations.

Managing responsibilities across teamsto ensure sustainability disclosures are consistent with financial reporting controls.

Enhancing cross-functional collaborationfordouble materiality assessmentand ensuring compliance withassurance and audit requirements​.

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 References:

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).

2023/2772, various EFRAG guidance documents, and reports related to CSRD, ESRS, stakeholder engagement, double materiality, external assurance, and digital reporting Study guide References at the end of each question

Under the ESRS framework, effectiveinternal controlsfor assurance purposes must meet key characteristics to ensure reliability, traceability, and auditability.

(A) Documentation & Implementation:Internal controls must be formally documented, implemented as per the designated schedule, and consistently applied​.

(C) Testability by External Assurance Providers:Assurance providers must be able to verify the controls, test their effectiveness, and ensure compliance with CSRD assurance requirements​.

(B) Same Staff Performing & Assuring the Control:A fundamental principle of internal control is theseparation of dutiesto avoid conflicts of interest. The control must be performed by one team and assured independently​.

(D) No Need for Documentation:Proper documentation ismandatoryfor internal controls to enable traceability, testing, and regulatory compliance​.

Commission Delegated Regulation (EU) 2023/2772, GOV-5:Risk management and internal controls over sustainability reporting, highlighting the necessity of internal control mechanisms​.

EFRAG Assurance Guidelines:Stipulating that documented controls must be verifiable and tested for external assurance​.

Correct Options Explained:Incorrect Options Explained:ESRS References:

DuringStep Bof thedouble materiality assessment process, organizations mustidentify actual and potential impacts, risks, and opportunities (IROs). The ESRS framework recommends the following methods:

A. The list of sustainability matters in ESRS 1 AR 16✅

ESRS 1 Application Requirement (AR) 16provides acomprehensive reference listof sustainability matters to consider when identifying IROs.

This list includesenvironmental, social, and governance topicsaligned withEU sustainability objectives​.

C. Due diligence processes✅

ESRS requires organizations touse due diligence processesto identifynegative sustainability impacts.

Due diligence aligns with frameworks such as theOECD Guidelines for Multinational Enterprisesand theUN Guiding Principles on Business and Human Rights​.

This ensures that potentialrisks and opportunitiesare assessed based oninternational sustainability standards.

D. Feedback from stakeholders✅

Stakeholders, includingemployees, suppliers, customers, and affected communities, providecrucial insightsinto sustainability impacts.

ESRSmandates engagement with affected stakeholdersas part of theIRO identification process​.

Financial materiality thresholds apply later in the process (Step C)when evaluating thefinancial impact of sustainability matters.

Step Bfocuses only on identifying IROs, makingfinancial thresholds irrelevant at this stage​.

Why is B. Financial materiality thresholds❌incorrect?Conclusion:Organizations should usethe ESRS 1 AR 16 sustainability matters list, due diligence processes, and stakeholder feedbacktoidentify IROsin Step B of the double materiality assessment.Financial materiality thresholds do not apply in this step.

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

Commission Delegated Regulation (EU) 2023/2772, ESRS 1, AR 16:List of Sustainability Matters for Identifying IROs​.

EFRAG Compilation of Explanations (January - July 2024): Confirmation thatdue diligence and stakeholder inputare part ofIRO identification​.

Not all EU Member States have decided that only statutory financial auditors are allowed to conduct the assurance of the sustainability statement. TheCorporate Sustainability ReportingDirective (CSRD)mandates that sustainability reports beassuredby an external party, but it allows Member States to decide whether assurance engagements can be performed by firms other than statutory financial auditors.

Limited Assurance Requirement:

TheCSRD introduces a phased approachtoassurance, starting withlimited assuranceand transitioning toreasonable assuranceover time (expected by 2028).

Initially,limited assuranceis required across all Member States.

Flexibility for Member States:

EU Member Stateshave discretionto allowother independent assurance service providersto conduct the sustainability assurance, in addition to statutory auditors.

Some countries mayrestrictsustainability assurance to statutory auditors, butthis is not an EU-wide rule​.

Upcoming EU Assurance Standards:

TheEuropean Commissionis working on developing acommon EU assurance standardfor sustainability reporting.

TheCommittee of European Auditing Oversight Bodies (CEAOB)has issued non-bindingguidelinesonlimited assurancefor sustainability reporting​.

Key Provisions:Thus,the statement is falsebecausenot all EU Member States have restricted sustainability assurance to statutory financial auditors. Some allowother independent assurance providersto conduct the engagements.

Official References:

CSRD (Directive (EU) 2022/2464) Assurance Provisions​.

EU Platform on Sustainable Finance Report (February 2025) – Assurance Standards and Guidelines​.

CEAOB Guidelines on Limited Assurance for Sustainability Reporting (September 2024)​.

2023/2772, various EFRAG guidance documents, and reports related to CSRD, ESRS, stakeholder engagement, double materiality, external assurance, and digital reporting Study guide References at the end of each question

Under the ESRS framework,employee-related datasuch asheadcount, turnover, and health and safety statisticsare typically the responsibility of theHuman Resources (HR) department. HR is responsible for managing workforce metrics, diversity, inclusion, hiring, terminations, and employee well-being, including health and safety programs.

WhileHealth and Safety (H&S) teamsmay contribute data related to occupational safety and health incidents, the responsibility foraggregating and reportingon overall workforce statistics lies with HR. TheCompliance departmentensures legal and regulatory adherence but does not maintain core employee records, whileMarketinghas no role in employee-related data reporting.

ESRS S1-6:Characteristics of the undertaking’s employees, requiring disclosure of total headcount and workforce breakdown​.

ESRS S1-14:Health and Safety Metrics, detailing occupational safety measures, incidents, and employee well-being programs​.

EFRAG Implementation Guidance on Workforce Reporting, which confirms HR as the responsible entity for employee data aggregation​.

ESRS References: