ESRS-Professional Practice Exam Questions with Answers ESRS Professional Certification Exam Certification

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:

The ESRS (European Sustainability Reporting Standards) framework consists of three primary categories of standards:

ESRS 1 (General Requirements):

ESRS 1 sets out thefundamental principlesand requirements for sustainability reporting.

It provides an overview of the structure and drafting conventions of the ESRS framework, defining the categories of ESRS standards: cross-cutting, topical, and sector-specific.

It also establishes thedouble materiality principleas the basis for sustainability disclosures.

ESRS 2 (General Disclosures):

ESRS 2 outlines thecore disclosure requirementsapplicable to all sustainability topics, ensuring comparability and completeness.

It includes general governance, strategy, impact, risk, and opportunity management disclosures applicable to all sustainability topics.

These disclosure requirements apply to all undertakingsregardless of the specific sustainability topics being reported.

Topical Standards:

The ESRS framework includes tentopical standardscovering the three key dimensions of sustainability:

Environmental (E): ESRS E1 (Climate Change), ESRS E2 (Pollution), ESRS E3 (Water & Marine Resources), ESRS E4 (Biodiversity & Ecosystems), and ESRS E5 (Resource Use & Circular Economy).

Social (S): ESRS S1 (Own Workforce), ESRS S2 (Workers in the Value Chain), ESRS S3 (Affected Communities), and ESRS S4 (Consumers & End-users).

Governance (G): ESRS G1 (Business Conduct).

These standards providespecific requirementson sustainability matters, complementing the general disclosure requirements in ESRS 2.

Sector-Specific Standards:

Sector-specific ESRS arecurrently under development.

These will address sustainability mattersspecific to different industries, ensuring that sectoral nuances are properly considered.

They aim tofill gaps not sufficiently coveredby the topical standards by defining industry-specific impacts, risks, and opportunities.

ESRS 1 (General Requirements) comes first, setting the foundation.

ESRS 2 (General Disclosures) follows, providing cross-cutting disclosure requirements.

Topical standards are next, covering specific sustainability topics.

Sector-specific standards are the final category, though they are still in development.

Why is C. ESRS 1; ESRS 2; topical standards; sector-specific standards the correct answer?Thus, the correct order aligns with theofficial structureof the ESRS framework as mandated inCommission Delegated Regulation (EU) 2023/2772?.

Official Commission Delegated Regulation (EU) 2023/2772, various EFRAG guidance documents, and CSRD-related references:

Commission Delegated Regulation (EU) 2023/2772, Annex I: Structure of the ESRS framework?.

EFRAG Compilation of Explanations (January - November 2024): Explanation of ESRS categories?.

EFRAG Mapping of Sustainability Matters to Topical Disclosures (Q&A ID 177): Confirmation of ESRS 1, ESRS 2, and the ten topical standards?.

Incorporation by reference in sustainability statements under ESRS must adhere to specific principles to ensure transparency, accessibility, and alignment with financial and regulatory reporting. The key principles are:

(A) The referenced information must be clearly identified in the original document.

ESRS mandates that referenced disclosures must beexplicitly identifiedin the original document to prevent ambiguity and ensure clear linkage to the sustainability statement?.

(C) It must comply with digitalization requirements.

The referenced data must meetthe same technical digitalization standardsas the sustainability statement to ensure consistency and usability across digital platforms?.

(D) It must meet the same level of assurance as the sustainability statement.

Any information incorporated by reference must be subject to at least thesame level of assuranceas the sustainability statement itself, ensuring reliability and accuracy?.

(B) It can be published later than the management report.

ESRSdoes not allowreferenced information to be published after the management report. It must be available at the same time or earlier to maintain the coherence of disclosures?.

Commission Delegated Regulation (EU) 2023/2772, ESRS 1, Section 9.1– Defines the principles of incorporation by reference?.

EFRAG Compilation Explanations (January - July 2024)– Provides guidance on referenced information's role in digital and assurance compliance?.

Incorrect Option:Official References:Thus, the correct answers areA, C, and D.

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)?.

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:

Impact materiality is indeed considered thestarting pointfor thedouble materiality assessmentin the ESRS. The reason is that material impacts on sustainability matters cangenerate financial risks and opportunitiesin the future. TheESRS frameworkfollows this structure because:

Interrelation Between Impact and Financial Materiality

Double materiality includestwo dimensions:a)Impact materiality(how the company affects people and the environment).b)Financial materiality(how sustainability matters affect the company’s financial performance).

Impact materiality assessments oftenprecedefinancial materiality because many sustainability issues initially manifest asexternal environmental and social impactsbefore affecting the company’sfinancial results?.

Regulatory Confirmation of Impact as the Starting Point

According toESRS 1, section 3.3, impact materiality is typically assessedfirst, unless afinancial risk or opportunity exists independentlyof an impact?.

A sustainability mattermay become financially materialover time due to regulatory changes, evolving market expectations, or direct financial consequences.

Illustration of the Double Materiality Process

Example: A company engaged inhigh carbon emissionsmight initially consider this animpact materiality issue(environmental harm). However,increased carbon pricing, regulatory changes, and shifting investor preferencescan latertransform this into a financial materiality issue.

Conclusion:Sinceimpact materiality serves as a precursorto financial materiality in most cases, the statement istrue.

Official Commission Delegated Regulation (EU) 2023/2772, various EFRAG guidance documents, and CSRD-related references:

Commission Delegated Regulation (EU) 2023/2772, ESRS 1, Section 3.3:Double Materiality Framework?.

EFRAG Compilation of Explanations (January - July 2024): Confirmation that impact materiality assessment is the typicalentry point?.

According to the European Sustainability Reporting Standards (ESRS) under the Commission Delegated Regulation (EU) 2023/2772, stakeholders are defined as individuals or groups who can affect or be affected by the undertaking. The ESRS distinguishes between two main groups of stakeholders:

Affected stakeholders: These are individuals or groups whose interests are affected or could be affected – positively or negatively – by the undertaking’s activities and its direct and indirect business relationships across its value chain.

Users of sustainability statements: These include primary users of general-purpose financial reporting (e.g., existing and potential investors, lenders, and other creditors such as asset managers, credit institutions, and insurance undertakings) and other users, including the undertaking’s business partners, trade unions, social partners, civil society and non-governmental organizations, governments, analysts, and academics?.

Furthermore, engagement with affected stakeholders is a crucial aspect of the undertaking’s ongoing due diligence process and sustainability materiality assessment. This involves identifying and assessing actual and potential negative impacts to inform the materiality assessment process for sustainability reporting?.

Official References:

Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU on sustainability reporting standards?.

ESRS 1: General Requirements, Section 3.1 (Stakeholders and their relevance to the materiality assessment process).