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Indicate whether the following statement is true or false. In the ESRS, impact materiality is considered the starting point for the double materiality assessment because material impacts may trigger financial risks and opportunities in the future.
Correct Answer: A
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.
