Looking back: The Materiality Assessment Round Table of the ESG Day 2023 – Focus on your questions



published on 10 November 2023 | reading time approx. 3 minutes

On October 12, 2023, Rödl & Partner's ESG Day took place for the second time in hybrid form. Part of our afternoon program was a round table on the topic of materiality assessment, in which we developed a best practice approach together with the participants and discussed individual questions.   

In this article, we would like to revisit the questions that arose and share our answers with you. 




According to the European Sustainability Reporting Standards (ESRS), a sustainability matter is material from a financial perspective if it has a significant financial impact on the company or if this can be reasonably expected. This is the case if a sustainability aspect gives rise to risks or opportunities that have a material impact on the company's development, financial position, results of operations, cash flow, access to funds or cost of capital. 

As internal stakeholders usually have a better overview and more in-depth knowledge of the relevant risks and opportunities in the individual company context, they are usually better suited to assessing financial materiality. However, selected external stakeholders may also be suitable for assessing financial materiality, provided they have knowledge of the issues mentioned. 

In order to obtain the most meaningful result possible as part of the materiality assessment, it is important when assessing any topic (financial or impact) to interview stakeholders (internal or external) who are familiar with the relevant topics and can provide a qualitative assessment.  

What must be observed with regard to the documentation of the materiality assessment (e.g. for the audit in the annual financial statements)? 

As sustainability reports are subject to audit under the Corporate Sustainability Reporting Directive (CSRD), the design and implementation of a materiality assessment must be documented accordingly in order to withstand an audit. As the materiality assessment is a central element of the sustainability report and the content of the reporting is largely dependent on it, the materiality assessment is likely to be a frequent focus of the audit. 
When documenting the materiality assessment, it should be ensured that the requirements of ESRS are met. In the case of the materiality assessment, these can be found in ESRS 1 point 3 (+ associated application require­ments) and ESRS 2 IRO-1 & IRO 2 (+ associated application requirements). In principle, the documen­tation should be prepared in such a way that a third party can understand in a subsequent audit how the materiality assessment was carried out, who was involved in which steps, which decisions were made and on what basis, and how it is ensured that the legal requirements are met.  

The process for determining and assessing the material impacts, risks and opportunities in accordance with ESRS 2 IRO-1 must also be disclosed in the sustainability report.
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How much time should you allow for the preparation of a materiality assessment? 

The time required for a materiality assessment cannot be generalized, as it depends heavily on company-specific factors such as size, structure, process organization, decentralization or complexity of the company. The level of ambition for the preparation and the results of the materiality assessment also have a major influence on the time frame for implementation. 

As the involvement of stakeholders is an elementary component of the materiality assessment and the processing and return of surveys should not be underestimated in terms of time, it is recommended that the time frame for a materiality assessment be set generously. Other elements of the materiality assessment, such as conceptualization or informing and educating stakeholders about the materiality assessment, should also not be underestimated in terms of time. 

As the materiality assessment forms a crucial cornerstone for the entire reporting and can provide valuable insights for the company, it is particularly worth investing the necessary time in this step.

What key questions should the materiality assessment clarify?  

A materiality analysis as part of sustainability reporting serves to identify company-specific topics and aspects that are relevant to the company and/or its stakeholders. This enables companies to focus their sustainability reporting on their individual key topics and report transparently on topics that are relevant to them. The materiality assessment should therefore make it clear which sustainability-related topics have a significant influence on the company's business activities (financial materiality) and on which sustainability-related topics the company has a significant influence (impact materiality). 

In addition, the results of the materiality assessment can be used strategically within the company, as they generate an understanding of which topics are important for stakeholders and in connection with which topics the company has opportunities and risks. 

How often do you have to carry out a materiality assessment?  

The CSRD stipulates that sustainability reporting under the ESRS must be carried out annually. Accordingly, the company must determine its material impacts, risks and opportunities for each report. 

However, if the company concludes on the basis of appropriate evidence that the result of the materiality assessment of the previous reporting period remains valid for the current reporting date, these results can be used. This may be the case, for example, if the company concludes that there have been no material changes in the organizational and operational structure of the company or in external factors and that the company-specific impacts, risks and opportunities have therefore remained the same. However, such a decision must be clearly substantiated, documented and disclosed. 

How do you assess the relevance of GRI in the future? SHould there still be separate reporting according to GRI when reporting according to ESRS? 

GRI will find it more difficult to gain a foothold in Europe, as the ESRS will become the gold standard here due to regulatory obligations alone. European companies are of course free to report on GRI topics in addition. 

Ultimately, it is also a resource issue – the initial application of the ESRS ties up a lot of resources, which means less capacity for reporting in accordance with voluntary standards. Many GRI requirements are already included in the ESRS. The core element of both GRI and ESRS is the materiality assessment. In this regard, it should be mentioned that the definition of impact materiality is the same in both frameworks and a corres­ponding materiality assessment according to GRI can therefore serve as a starting point for the double materiality assessment according to ESRS. 

Both standard setters have promised to work intensively on interoperability between GRI and ESRS in order to make implementation easier for companies and ensure the greatest possible comparability. For example, according to a joint statement by EFRAG and GRI, companies that use the ESRS officially report “with reference to” the GRI Standards. However, it remains to be seen how the integration of the two standards will be accepted and implemented in practice by companies and recipients of sustainability reporting.

At what level should the identification of the IROs take place (at topic level, sub-topic level or sub-sub-topic level)? 

The identification of impacts, risks and opportunities (IROs) is a key element of the materiality assessment. By identifying and formulating IROs, the topics, sub-topics and sub-sub-topics defined by the ESRS become company-specific. As the assessment of material topics must be based on the IROs, it makes sense to formulate IROs that are as detailed as possible. 

The list of topics specified by the ESRS serves as a basis and must be supplemented with company-specific topics, sub-topics, impacts, opportunities and risks. The level at which it makes sense to identify IROs can vary from topic to topic depending on the company. While IROs may be identified at topic level for some topics, for other topics the sub-topics may not be granular enough and may need to be further specified or supplemen­ted.  

Basically, the more precisely the IROs are formulated, the higher the quality of the assessments in the materiality assessment will be, as this ensures, among other things, that the evaluating stakeholders have as uniform an understanding as possible of the specific impact, risk or opportunity. 

Must figures for which there is no information be estimated?  

In certain circumstances, quantitative parameters and monetary amounts, including information on the upstream and downstream value chain, cannot be measured directly. In these cases, the company estimates the information to be provided using reasonable and supportable information such as sector averages or approximations.  

However, the inclusion of estimates or approximations must not result in the information not meeting the qualitative characteristics of information according to ESRS.

At which level are size criteria to be applied (group level or individual company level)?  

The size criteria, determining whether a company falls under the CSRD and is therefore required to report under ESRS, are fundamentally applicable to every company (both at the group level and individual company level). If the group is subject to reporting obligations, a sustainability report must be published at the group level. Simultaneously, every individual company falling within the scope of the CSRD is also obligated to report under ESRS. As an alternative to creating a sustainability report at the individual company level, the so-called group privilege can be utilized: a company is exempt from its own reporting obligation when it is included in the CSRD reporting of the parent company, i.e., the group. It is important to note, however, that the group privilege cannot be claimed if the included subsidiary is both large and capital market-oriented. 

If the entire group is not subject to the CSRD/ESRS, for instance, because the parent company is located in an EU member state and will only become subject to reporting obligations at a later date, individual companies that already fall under the CSRD based on size criteria must publish their own sustainability report unless this is voluntarily done at the group level. 

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