Understanding Impact and Financial Materiality under ESRS
The ESRS framework is based on double materiality, which comprises:
Impact Materiality – This relates to the organization’s potential positive or negative impacts on
people or the environment, irrespective of whether these impacts translate into financial effects.
Financial Materiality – This refers to sustainability matters that affect the company's financial
position, including risks and opportunities that influence financial outcomes over the short, medium,
or long term.
Why the other options are incorrect:
(A) False: A sustainability topic can be material even if it does not directly affect financial
performance; it may still be impact material.
(D) False: Impact and financial materiality are equally important under ESRS. Neither is prioritized
over the other.
(E) False: The ESRS process generally begins with impact materiality, not financial materiality.
Reference:
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
