In this process step, the company-specific impacts are recorded.
The identification of company-specific impacts, risks and opportunities, or IROs for short, is the key element of the double materiality analysis. The aim of this process step is to record the company-specific impacts.
This view now contains all the impacts that you have selected from the recommended impact list. Click on the arrow for the respective ESG area (environmental, social and governance) to open the list of impacts. In this step, you should add further impacts that have not been identified by the Impact AI and add company-specific information to the previous impacts.
Firstly, please fill in the lines for previous impacts. To do this, enter the type of impact, where in the value chain the impact occurs, the person(s) responsible or contact person in the company and the stakeholder groups affected. To do this, click on the field below the relevant heading. If you have a file that contains helpful information on the impact for the report writing process, you can upload it using the upload button. If you click on the title of the impact, a new window will open in which you can note down further explanations and company-specific information on the impact.
- Impacts that are known from previous stakeholder dialogue (ESRS 1.24; IG Materiality Assessment para. 87, 104107; IDW module pronouncement ESRS 1 M1.2 para. 8-10, 19- 28).
- Impacts arising from the economic activities of the company. Industry guidelines and benchmarking databases can be consulted for identification (IG Materiality Assessment para. 70).
- Impacts that may already be taken from existing due diligence procedures (ESRS 1.58, 1.60; IDW module pronouncement ESRS 1 M1.1 para. 17).
- Where possible and relevant, legal and regulatory frameworks as well as other publicly available documents such as media reports, sector benchmarks, peer analyses and others can also be considered (IG Materiality Assessment para. 70).
To do this, click on the Add datapoint button, whereupon a pop-up window opens in which you fill in the fields.
Impacts can be added, edited or removed at any time throughout the process using the delete icon. You can use the arrow function to move the impacts up or down. You also have a search function and various filter options to display specific content. The Continue button takes you to the next process step.
Further assistance
Identifying impacts is about understanding what impacts the company has on the environment, people and governance issues. Impacts can result from the company's business activities (i.e. in its own operations through its products/services), or from its business relationships, i.e. in the upstream value chain (on the supplier side) or the downstream value chain (on the customer side). It is important to understand that the impact can be positive or negative. Impacts may have already occurred, i.e. they may be actual impacts, or they may only occur in the future, in which case they are potential impacts (ESRS 1.43).
Two case studies serve to illustrate this:
(a) If the company uses cobalt in its products that is mined using child labour, the negative impacts (i.e. child labour) are related to the company's products due to business relationships within its upstream value chain. These relationships include smelters and mineral traders as well as the mining company that uses child labour; and
(b) if the entity provides financial loans to another entity for business activities that result in the contamination of water and soil in the vicinity of the operation in breach of agreed standards, that negative impact is related to the entity because of its relationship with the entity to which it provides the loans. (1)
Furthermore, you should ensure that you include all (subsidiary) companies in the scope of consideration for which IROs in business operations and/or in upstream or downstream stages of the value chain cannot be excluded from the outset. When identifying impacts, the entire value chain must be considered. It is therefore advisable to go through the stages of the value chain step by step and check for possible impacts.
As the impacts must be assigned to the range of ESRS topics in the next process step (under Assignment), it is also advisable to look at the ESRS list of topics and sub-topics to identify impacts (see figure).
The conclusion of the material topics for the CSRD 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 should therefore be taken into account when formulating IROs: (2)
The following questions can be helpful in identifying impacts (2):
- Can our products, services or processes cause harm to people (e.g. own employees, value chain employees, affected communities, customers and end consumers) or have they caused harm in the past?
- Can our products, services or processes cause damage to the environment (e.g. climate, pollution, water/marine resources, ecosystems, resource consumption & circular economy) or have they caused damage in the past?
- Can our products, services or processes benefit people or the environment or have they done so in the past?
- What are the impacts in the upstream value chain (suppliers / raw material production)?
- What impacts are there in the downstream value chain (at the end consumer, through customer service and maintenance, after disposal or recycling)?
- Where do I need to consider aspects outside my company boundaries to get a complete picture of my impact?
Example of a potential negative impact (2):
ESRS theme: E4 Biodiversity and ecosystems
Subtheme: Impact on the extent and condition of ecosystems
Impact: ‘Raw material extraction and land consumption/sealing can weaken or destroy ecosystems.’
Example of an actual positive impact:
ESRS theme: E3 Water and marine resources
Sub-theme: Water
Impact: ‘The use of service water and rainwater contributes to the conservation of water resources.’
Additional information (2):
- 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.
- Risks often arise in connection with negative impacts or dependencies. These should nevertheless be formulated separately.
Source reference:
(1) Delegierte Verordnung (EU) 2023/2772, ESRS 1, Anlage A, AR 12, https://eur-lex.europa.eu/legal-content/DE/TXT/?uri=OJ%3AL_202302772
(2) Deutscher Nachhaltigkeitskodex (o. D.), IROs, https://www.deutscher-nachhaltigkeitskodex.de/media/4ijpazw4/dnk_iros-impacts-risks-and-opportunities.pdf