How to determine negative impact materiality?

The ESRS uses ‘impacts’ for both positive and negative sustainability effects of an undertaking, including current and possible future effects. Impact materiality is usually the beginning of the analysis, whereby you can start with negative impacts.

To determine negative impact materiality, you should consider:

  • the likelihood of a risk occurring and
  • the severity of the negative impact.

Severity is assessed based on scale, scope and irremediability:

  • scale refers to the gravity or seriousness of the potential or actual negative impact;
  • scope refers to the reach or extent of the potential or actual negative impact, for example the number of individuals that are or will be affected;
  • irremediable character refers to the irreversible nature of the negative impact by looking at the limits on the ability to restore the individuals or environment affected to a situation equivalent to their situation before the negative impact.

Subsequently, you set likelihood against severity and see which negative impacts are material in any case (red) and potentially material (orange), depending on the specific organisation. Severity takes precedence over likelihood. For more information, reference is made to EFRAG's implementation guideline on double materiality.


Questions CSRD & ESRS

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Questions regarding individual facts or circumstances will not be answered through these channels. For such questions, we recommend that you contact an advisor such as your company accountant.

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