How to Start Identifying Impacts, Risks, and Opportunities: Tools and Sources to Conquer Your Blank Page Anxiety When Identifying IROs

‍The Double Materiality Assessment (DMA) is an exciting and essential part of the CSRD (Corporate Sustainability Reporting Directive) reporting process. Why? Because it helps you understand your company’s impact on the environment and people, and also the risks and opportunities related to sustainability. But while the DMA can bring useful insights, it often feels subjective and never-ending. Where to even start when it comes to identiying impacts, risks and opportunities (IROs for short)? Especially when it comes to finding objective, evidence-based IROs, as EFRAG requires? Fortunately, you’re in luck— we’re about to introduce you to tools and documents that will help you kick-start your IRO identification and give you peace of mind knowing that your process is grounded in science.

Understanding the Double Materiality Assessment (DMA) under CSRD

One of the standout features of the Corporate Sustainability Reporting Directive (CSRD) is the Double Materiality Assessment. This approach evaluates both your company’s impact on society and the environment, alongside any sustainability-related financial risks and opportunities. A DMA done properly ensures your sustainability efforts align with your overall business strategy. It also highlights which ESRS (European Sustainability Reporting Standards) topics are relevant to your company, and you will have to gather data and report only on these topics.  

Now, the steps for completing your DMA might sound straightforward: Understand the context, identify the IROs, evaluate them and determine materiality and then disclose your DMA process and your results. But companies still face difficulties, especially when it comes to identifying their impacts, risks and opportunities, aka IROs. It can feel like pulling impacts and risks out of thin air! So how do you make this process more fact-based? It all comes down to using the right resources, which we’re about to walk you through.

It’s not C-3PO, it’s AR16 – your new best friend!

Before diving in, it’s essential to familiarize yourself with the ESRS (European Sustainability Reporting Standards). This comprehensive document outlines all the potential topics, sub-topics, and even sub-sub-topics for assessing materiality. It might seem overwhelming and packed with legal jargon at first, but it’s a goldmine for identifying IROs. If you haven't already, take a look at AR16 in ESRS 1—it provides a list of over a hundred areas where your company might have an impact, risk, or opportunity. Remember, you don’t need to identify an IRO for every single item, but AR16 is an excellent starting point for spotting your IRO hotspots.

Impact hunting made easy

GRI Sector standards  

If you based your sustainability/CSR reporting on GRI standards before you embarked on the journey towards CSRD compliance, you’ll want to keep GRI on your radar—especially their sector-specific standards. GRI plans to define standards for 40 sectors, and four are already available: Oil and Gas, Coal, Agriculture, Aquaculture and Fishing, and Mining. If your company operates in any of these sectors, these documents are a must-see. They provide a list of potentially material environmental and social topics, along with the relevant GRI disclosure requirements and practical examples.

While GRI and ESRS topics and disclosure requirements aren't identical, they are quite compatible. By aligning your DMA with GRI sector standards, you’ll not only identify your material topics but also get a head start on meeting disclosure requirements.

Keep in mind that ESRS will also introduce sector-specific standards. For example, sectors like Oil & Gas, Mining, Quarrying and Coal Mining, Road Transport, Textiles, Accessories, Footwear and Jewellery, and Financial Institutions are expected to be open for public consultation by the end of this year.

ENCORE NATURE

For identifying environmental impacts and dependencies, ENCORE Nature is an invaluable, easy-to-use platform. Simply enter your sector, sub-industry, and production process (if applicable), and ENCORE will present relevant dependencies and impacts. It draws on data from scientific papers and UNEP-WCMC projects, ensuring reliable results.

Each impact or dependency is briefly explained, and ENCORE provides a materiality rating. It also links natural assets, ecosystem services, and impact drivers, giving you a comprehensive view of your sector's or sub-industry’s environmental footprint. For instance, if you're in the paper industry, water use is identified as a highly material impact driver, affecting natural assets like water and habitats, which can lead to droughts and loss of population (details are available under the Factsheet tab).

Additionally, ENCORE offers a map view that highlights potential hotspots for dependencies, impacts, and capital layers (e.g., water or biodiversity depletion), making it a valuable tool for your value chain due diligence.

In summary, ENCORE Nature is an excellent starting point for understanding your environmental impacts and the context of your processes. Its main limitation is that it provides only an overarching view of environmental impacts, meaning you'll need other resources to address social and governance aspects and to personalize these correlations for your company.

Struggling with understanding your social impacts? Check out these resources!

Mapping social impacts, particularly those affecting value chain workers (S2) and communities (S3), can be challenging since they often occur deep within the value chain, making it hard to see how your company’s actions impact communities far removed from your operations. The resources below will help you navigate and address these complexities effectively.

Human Rights Translated 2.0 - A business Reference Guide by Monash University in collaboration with the Office of the United Nations High Commissioner for Human Rights and the United Nations Global Compact, 2017  

This guide from Monash University and the UN provides an excellent overview of human rights and corporate responsibilities. While mapping the human rights with the relevant ESRS topics might take a minute, this document is packed with case studies (both good and bad examples) that can offer real insight into potential impacts companies have on human rights.  

A notable example Human Rights Translated 2.0 involves a textile company operating in a developing country. The company was found to be indirectly contributing to child labor in its supply chain. Despite having no direct control over the factories supplying them, the company’s demand for low-cost, high-speed production created an environment where suppliers resorted to hiring underage workers to meet tight deadlines and price pressures.

This situation not only violated the rights of children to be free from exploitation but also affected their access to education and proper development. This case demonstrates how companies, even without direct involvement, can significantly impact human rights through their business practices.

Guiding Principles on Business and Human Rights - Implementing the United Nations “Protect, Respect and Remedy” Framework by United Nations Human Rights – Office of the high commissioner, 2011

Another document worth noting from the UN is this guidance, which is also relevant to the Social topics as it is mainly about the principles of corporate responsibility on human rights. This one’s a bit more theoretical, focusing on principles and good policy writing. While it’s a good starting point, it’s less practical if you’re looking for specific examples to guide you through the DMA process.

Satisfying your risk-appetite

SASB standards  

For a broader look at risks and opportunities across all three dimensions (environmental, social, and governance), SASB’s free platform is an excellent resource. All you have to do is choose the relevant industry and sector, or in case of publicly listed companies just type your company’s name in the search filed, and SASB will list your potentially material risks and opportunities (but not impacts!) in in several E, S and G topics. You can also find a short description of the topics, and examples of the mechanisim how the risks might realise (e.g. through stricter regulations).  

While the SASB materiality finder can offer you a helpful analysis, this is still only the  big picture. It is not going to tell your your company-specific risks and opportunities, but this can be a good start to benchmark against industry peers. Another advantage is that the SASB topics can be easily matched tot he sub-sub topics of ESRS. Besides the industry specific standards of SASBgive you neat examples and metrics of how the material topics could be measured.  

MSCI ESG Industry Materiality map  

MSCI’s Materiality Map is another easy-to-use tool that gives you a quick snapshot of potentially material topics for your sector and sub-industry in the dimensions of environment, social and governance. The topics here can also be easily matched tot he ESRS sub-sub topics, but what’s really valuable here is that by every topic, it also ranks sub-industries within the same sector regarding their impact materiality, helping you see where you stand.

MSCI also offers you a reliable help, as they use an industry-specific weight setting methodology, that outperformed the equal-weighted and optimized weight setting methodologies over their 13-year period of study. The benefits of this materiality map also includes the three dimension assessment, easy usage and clear overview.Keep in mind that MSCI’s map is focused on the risks and opportunities and does not take impacts in to consideration.It also doesn’t account for your company’s specific location or attributes. Therefore it is a good starting point but do not forget that it will not do your job for you.

WWF Risk Filter  

WWF’s Risk Filter is your go-to tool if you need more detailed and company-specific assessment. This tool is a bit more complex to use, as you have to upload here company specific information, while only assessing your water and biodiversity specific risks and to some extent, impacts at the end. Therefore this tool is only worth the effort if you know you potentially have material IROs in these two topics and you need a science-based deepdive to learn more about these.  

ByThe biodiversity risk filter tool, assess eight risk categories related to physical and reputational risks. The assessment is based on data from 50 global, scientific databases. You will see diagrams of the risks assessed by materiality and a map of the most important hotspots.

The water risk filter tool provides a more detailed assessment with basin and operational risks, both broken down to regulatory, reputational and physical risks, based on global and regional databases. Beside the assessed risks, a scenario analysis is also available with both the target years of 2030 and 2050. If you choose to assess your water risks in a group level with multiple sites, you can see the above listed risks in a map view with the potential hotspots, and the scenario analysis is available for this view as well.  

AI can be pretty smart

Denxpert DMA generator: The AI-Powered Solution  

Last, but not least you can always turn to our DMA generator tool, which offers you the most complex and personalised solution from all of the tools listed above. It uses AI power to assess your material impacts, risk and opportunities based on publicly available information and open source research databases, following the requirements and recommendations of ESRS and EFRAG’s Materiality Assessment Implementation Guidance. Therefore with this tool, you get a detailed, high-level DMA, sent straight to your inbox, complete with suggestions for potential IROs, which makes it unique among other tools. And the best part is, that all you have to do is giving your company’s name and location. Of course, using AI for your DMA is not at all audit proof: therefore use tools like denxpert DMA generator to get the creatives juices flow, but not as an authoritative source of your IROs.