On January 1, 2024, the EU’s Corporate Sustainability Reporting Directive (CSRD) officially came into force. The CSRD is an expansive piece of legislation and many in-scope companies are scrambling to comply with the law. While the CSRD contains over 1,144 data points, companies are only required to report on those data points that companies deem are material to them. The new draft guidance known as EFRAG IG 1 provides valuable information about how that materiality assessment should be conducted. A recent memo from Ropes & Gray describes EFRAG IG 1 stating that:
“Draft EFRAG IG 1 explains the ESRS approach to materiality, illustrates how the materiality assessment is to be performed, explains how undertakings can take account of other frameworks and standards and includes FAQs on impact and financial materiality, the materiality assessment process, stakeholder engagement, aggregation/disaggregation and reporting.”
While companies may not have to report on all impacts, risks, and opportunities (IROs), they are required to disclose the results of their materiality assessments and explain their reasoning for non-disclosure. EFRAG IG 1 does not define specific processes or procedures for conducting materiality assessments; instead it clarifies a number of points and lays the framework for how materiality concepts should be considered.
The current guidance is open for public feedback until February 2nd, 2024. Even after final publication, this guidance is merely to assist companies in conducting materiality assessments and is not a binding part of the CSRD or ESRS.
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