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Under ESRS, organizations are required to disclose material impacts, risks, and opportunities (IRO) in accordance withdouble materiality principles. The ESRS framework emphasizes transparency and structured reporting of sustainability matters that arematerial from both impact and financial perspectives.

Key Disclosure Requirements for Material IROsAccording to ESRS 2, organizations must disclose:

(A) The outcomes of their double materiality assessment: Organizations need to explain how they determined material sustainability matters, covering both impact and financial materiality?.

(B) Information outlined in the topical ESRS and sector-specific standards: The disclosure of IROs must align withspecific ESRS topical standards(e.g., ESRS E1 for climate change, ESRS S1 for own workforce) andsector-specific standards, ensuring comprehensive reporting?.

(C) Minimum Disclosure Requirements on policies, actions, and targets: Organizations must disclosepolicies, strategies, action plans, and progress tracking mechanismsrelated to managing material sustainability risks and opportunities. ESRS mandates these disclosures to provide transparency on an entity’s approach torisk mitigation and opportunity realization?.

(D) A general overview of their sustainability policies, even if unrelated to specific material matters:

ESRS doesnotrequire companies to provide general sustainability policy overviewsunlessthey relate to material sustainability matters. The focus is on material disclosures that affect business operations or external stakeholders?.

Commission Delegated Regulation (EU) 2023/2772, ESRS 2, Section 4.1 & IRO-1– Covers disclosure requirements for identifying and assessing material impacts, risks, and opportunities?.

EFRAG Compilation Explanations (January – November 2024)– Details about ESRS 1 and ESRS 2 disclosure requirements on materiality?.

Incorrect OptionOfficial References:

EcoFurniture Inc. is performingStep B of its double materiality assessmentunder ESRS, which involves identifying and assessingimpacts, risks, and opportunities (IROs)from both animpact materialityandfinancial materialityperspective?.

During Step B, the organization must:

Compare entity-specific sustainability matters to ESRS 1 AR 16

Screening sustainability matters listed in ESRS 1 AR 16ensures that EcoFurniture Inc. identifies allpotential material topicsand aligns them with itsspecific sustainability context?.

Action:?(A) is correct

Engage with affected stakeholders

Stakeholder engagementis a key requirement in the ESRSdouble materiality process, especially for industries with environmental and social impacts, such as deforestation risks in EcoFurniture's timber sourcing.

ESRS 2 IRO-1 explicitly states that stakeholder engagement is necessary tovalidate materiality assessments?.

Action:?(B) is correct

Consider downstream impacts

ESRS mandates assessingboth upstream and downstreamsustainability impacts.Ignoring potential risks in the downstream value chain is not aligned with ESRS requirements.

Action:?(C) is incorrect

Use scientific research to validate sustainability trends and risks

Theuse of scientific evidenceis an essential part of assessing sustainability matters.ESRS encourages leveraging research and external data to confirm industry-specific sustainability risks?.

Action:?(D) is correct

Conclusion:EcoFurniture Inc. must integratestakeholder engagement, scientific research, and systematic comparison of sustainability matters to ESRS requirementsto ensure a robust Step B materiality assessment.Ignoring the downstream value chain is not permissibleunder ESRS.

Commission Delegated Regulation (EU) 2023/2772?

Compilation Explanations January - November 2024?

Official References:

Inline XBRL (iXBRL)is the digital reporting format required under theCorporate Sustainability Reporting Directive (CSRD)to ensure standardized and machine-readable sustainability reporting.

It is required under CSRD for sustainability reporting

TheCSRD mandates the use of Inline XBRLfor sustainability reports, ensuring digital tagging for structured data submission, making informationeasier to analyze by regulators and investors?.

?(A) is correct

It only applies to narrative disclosures, not numerical data

Incorrect.Inline XBRL applies to both numerical data (KPIs, metrics) and narrative disclosures, allowingstructured reporting across qualitative and quantitative sustainability information?.

?(B) is incorrect

It makes reports both human-readable and machine-readable

True. Inline XBRL embeds machine-readable tags into a human-readable document, ensuringboth usability and compliance with digital reporting requirements?.

?(C) is correct

It ensures that tags are embedded within a visually clear format

Correct. TheInline XBRL standard ensures that the digital tags do not alter the visual presentation of the report, maintaining clarity for human readers while allowing structured data extraction?.

?(D) is correct

Conclusion:Inline XBRLis required under CSRD (A), makes reports both human-readable and machine-readable (C), and ensures a visually clear format (D). However, it applies to both narrative and numerical data, making (B) incorrect.

Commission Delegated Regulation (EU) 2023/2772?

Compilation Explanations January - July 2024?

Official References:

TheCorporate Sustainability Reporting Directive (CSRD)replaced theNon-Financial Reporting Directive (NFRD)to address itslimitationsin scope and reporting requirements. Below are the explanations for each option:

A. False– The NFRDdid notrequire all companies in the EU to include a non-financial statement. Instead, itapplied only to large public-interest entitieswith 500 or more employees.

B. True– The NFRD applied tolarge public-interest entities, includinglisted companies, banks, and insurance firms with more than 500 employees?.

C. False– The NFRDdid not mandate external assurancefor sustainability information. TheCSRD introduced mandatory assuranceat the EU level?.

D. False– The CSRDdid not replace the NFRD; rather, itexpanded and strengthened reporting requirements. TheNFRD was replaced by the CSRD, but not the other way around?.

E. True– TheCSRD was introduced to improve the scope and depth of sustainability reportingcompared to the NFRD. Itexpanded the number of entities required to report, standardized disclosures via ESRS, and introduced third-party assurance requirements?.

Key Differences Between CSRD and NFRDFeature

NFRD (Old Directive)

CSRD (New Directive)

Scope

Large public-interest entities (500+ employees)

All large companies + listed SMEs

Assurance

Not required

Mandatory external assurance

Disclosure Requirements

Limited sustainability disclosures

Comprehensive ESRS-based reporting

Reporting Standards

No standardized framework

ESRS-based mandatory framework

Application Date

In force since 2018

Applies from 2024 onwards

CSRD Directive (EU) 2022/2464– Assurance & Reporting Provisions?.

ESRS Compilation Explanations January - November 2024?.

Official References:

Not all EU Member States have decided that only statutory financial auditors are allowed to conduct the assurance of the sustainability statement. TheCorporate Sustainability ReportingDirective (CSRD)mandates that sustainability reports beassuredby an external party, but it allows Member States to decide whether assurance engagements can be performed by firms other than statutory financial auditors.

Limited Assurance Requirement:

TheCSRD introduces a phased approachtoassurance, starting withlimited assuranceand transitioning toreasonable assuranceover time (expected by 2028).

Initially,limited assuranceis required across all Member States.

Flexibility for Member States:

EU Member Stateshave discretionto allowother independent assurance service providersto conduct the sustainability assurance, in addition to statutory auditors.

Some countries mayrestrictsustainability assurance to statutory auditors, butthis is not an EU-wide rule?.

Upcoming EU Assurance Standards:

TheEuropean Commissionis working on developing acommon EU assurance standardfor sustainability reporting.

TheCommittee of European Auditing Oversight Bodies (CEAOB)has issued non-bindingguidelinesonlimited assurancefor sustainability reporting?.

Key Provisions:Thus,the statement is falsebecausenot all EU Member States have restricted sustainability assurance to statutory financial auditors. Some allowother independent assurance providersto conduct the engagements.

Official References:

CSRD (Directive (EU) 2022/2464) Assurance Provisions?.

EU Platform on Sustainable Finance Report (February 2025) – Assurance Standards and Guidelines?.

CEAOB Guidelines on Limited Assurance for Sustainability Reporting (September 2024)?.