GRI ESRS-Professional ESRS Professional Certification Exam Exam Practice Test

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:

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​.

TheESRS Taxonomyacts as aframeworkfor tagging sustainability disclosures, ensuring data is structured, consistent, and comparable across organizations.

TheCSRD requires sustainability information to be reported in a digitally accessible format, making it available for both people and machines.

Under the CSRD, sustainability reports will eventually be uploaded to theEuropean Single Access Point (ESAP), centralizing public financial and non-financial information across the EU​.

ESRS as a "framework"– The ESRS taxonomy defines a structure that allows sustainability data to be categorized and tagged effectively​.

"Digitally accessible format"– The CSRD mandates reporting inmachine-readable formatssuch asXBRLto improve transparency and comparability​.

European Single Access Point (ESAP)– ESAP will serve as thecentralized EU platformfor sustainability and financial disclosures​.

Correct Sentence Completion:Explanation of the Selected Answer:References:

EU Taxonomy Regulation and CSRD Reporting Structure​

EFRAG Explanation on ESRS Digital Reporting​

UnderESRS 2 (Appendix F of ESRS 1), sustainability statements must follow astructured disclosure approach. The appendix provides guidance on the recommended format and elements to be included in the sustainability statement to ensureconsistency, comparability, and transparency.

(C) A list of Disclosure Requirements that have been complied with:

Organizations must provide aclear list of all ESRS disclosure requirementsthat they have reported on. This ensures that stakeholders can assess whether the company has complied with itsmateriality-based reporting obligations​.

The list must includepage numbers or referencesto the exact location of disclosures within the report.

(A) A specific structure prescribed by the ESRS:

While ESRS 1 provides arecommended structure, it isnot mandatory. Instead, companies are given flexibility to adapt the format to their reporting needs​.

(B) Only sector-specific Disclosure Requirements:

The sustainability statement should coverboth general ESRS disclosures and sector-specific disclosures, not just sector-specific ones​.

(D) A table summarizing financial performance:

Financial performance isnota core requirement of thesustainability statement. Instead, ESRS focuses onsustainability-related disclosuresthat impact financial performance but does not mandate a direct financial summary within the sustainability statement​.

Commission Delegated Regulation (EU) 2023/2772, ESRS 2 (Appendix F of ESRS 1)– Outlines the format and elements of the sustainability statement​.

EFRAG Compilation Explanations (January – November 2024)– Provides insights into structuring sustainability statements under ESRS​.

Key Requirements for ESRS 2 Sustainability StatementIncorrect OptionsOfficial References:Thus, the correct answer isC. A list of Disclosure Requirements that have been complied with.

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​.

DuringStep Bof thedouble materiality assessment process, organizations mustidentify actual and potential impacts, risks, and opportunities (IROs). The ESRS framework recommends the following methods:

A. The list of sustainability matters in ESRS 1 AR 16✅

ESRS 1 Application Requirement (AR) 16provides acomprehensive reference listof sustainability matters to consider when identifying IROs.

This list includesenvironmental, social, and governance topicsaligned withEU sustainability objectives​.

C. Due diligence processes✅

ESRS requires organizations touse due diligence processesto identifynegative sustainability impacts.

Due diligence aligns with frameworks such as theOECD Guidelines for Multinational Enterprisesand theUN Guiding Principles on Business and Human Rights​.

This ensures that potentialrisks and opportunitiesare assessed based oninternational sustainability standards.

D. Feedback from stakeholders✅

Stakeholders, includingemployees, suppliers, customers, and affected communities, providecrucial insightsinto sustainability impacts.

ESRSmandates engagement with affected stakeholdersas part of theIRO identification process​.

Financial materiality thresholds apply later in the process (Step C)when evaluating thefinancial impact of sustainability matters.

Step Bfocuses only on identifying IROs, makingfinancial thresholds irrelevant at this stage​.

Why is B. Financial materiality thresholds❌incorrect?Conclusion:Organizations should usethe ESRS 1 AR 16 sustainability matters list, due diligence processes, and stakeholder feedbacktoidentify IROsin Step B of the double materiality assessment.Financial materiality thresholds do not apply in this step.

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

Commission Delegated Regulation (EU) 2023/2772, ESRS 1, AR 16:List of Sustainability Matters for Identifying IROs​.

EFRAG Compilation of Explanations (January - July 2024): Confirmation thatdue diligence and stakeholder inputare part ofIRO identification​.

Step A in thedouble materiality assessment processis theinitial stagewhere an organization establishes a foundational understanding of itsbusiness context, activities, and stakeholder relationships. This step is critical in identifying how the entity interacts with environmental, social, and governance (ESG) matters and lays the groundwork for further impact and financial materiality assessments.

Thedouble materiality conceptin the ESRS framework requires organizations to evaluate both:

Impact materiality– How an organization’s activities impact people and the environment.

Financial materiality– How sustainability matters influence the organization's financial position, performance, and cash flows.

Identifying the business environment:Understanding industry-specific sustainability challenges, regulatory requirements, and stakeholder expectations.

Recognizing affected stakeholders:Engaging internal and external stakeholders to determine which sustainability matters are relevant.

Defining dependencies and risks:Evaluating the organization’s dependencies on natural, social, and human capital, and how these can influence business outcomes.

Understanding sector and geographical relevance:Assessing which sustainability issues are most significant based on where the company operates.

Key Aspects of Step A in Double Materiality Assessment:Step A does not yet involve selecting specific disclosure requirements (Step B) or conducting a financial materiality assessment (Step C). Instead, it provides thecontextual frameworknecessary for subsequent steps in the materiality process​.

Commission Delegated Regulation (EU) 2023/2772, ESRS 1, Section 3.1– Defines stakeholders' role in materiality assessment​.

EFRAG Compilation Explanations January - November 2024– Provides guidance on applying double materiality and the importance of Step A​.

EFRAG IG 1 Materiality Assessment, Chapter 2.2– Outlines Step A as the process of understanding business activities, stakeholders, and sustainability context​.

Official References:Thus, the correct answer isC. Understand the organization's context, activities, and stakeholders.

Understanding Impact and Financial Materiality under ESRSTheESRS frameworkis based ondouble materiality, which comprises:

Impact Materiality– This relates to the organization’s potentialpositive or negative impactson people or the environment, irrespective of whether these impacts translate into financial effects​.

Financial Materiality– This refers to sustainability matters thataffect the company's financial position, including risks and opportunities that influence financial outcomes over theshort, medium, or long term​.

(A) False:A sustainability topic can be materialeven if it does not directly affect financial performance; it may still beimpact material​.

(D) False:Impact and financial materiality are equally importantunder ESRS. Neither is prioritized over the other​.

(E) False:TheESRS process generally begins with impact materiality, not financial materiality​.

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​

Why the other options are incorrect:References:

Organizations should report on sustainability for several reasons, includingtransparency, stakeholder expectations, and competitive advantage. Below is the evaluation of each option:

A. True– Reporting on sustainabilitydemonstrates transparency and accountability, allowing companies to disclose theirenvironmental, social, and governance (ESG) impacts​.

B. True–Stakeholders, including investors, customers, and regulators,increasingly demand sustainability reportingto assess the long-term viability of a company​.

C. False– While sustainability reporting may contribute tolong-term financial gains, it doesnot guarantee immediate financial benefits​.

D. True– Companies withstrong sustainability performanceoften enjoyenhanced brand value and competitive advantage, attracting investors and customers who prefer sustainable businesses​.

Why Sustainability Reporting MattersBenefit

Impact on Organization

Transparency & Accountability

Builds trust with investors, regulators, and the public

Stakeholder Expectations

Meets regulatory and customer expectations for ESG disclosures

Brand & Competitive Advantage

Companies with strong ESG performance are more attractive to investors

Regulatory Compliance

Helps meet CSRD and ESRS disclosure obligations

CSRD & ESRS Guidance (2024)– Key Sustainability Reporting Benefits​.

EU Platform on Sustainable Finance Report (2025)– Stakeholder Expectations & Competitive Advantage​.

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:

UnderESRS 2 and topical ESRS,external assurance is not required for all information reported. Instead, assurance requirements depend onspecific regulatory obligations and the phase-in periods set by the Corporate Sustainability Reporting Directive (CSRD).

Limited Assurance Requirement Initially

CSRDmandates limited assuranceover sustainability information at first, withreasonable assurance (more stringent) to follow in later years​.

However,not all data points require assurance—only those specifically outlined in theEuropean Commission's assurance framework.

Mandatory Assurance for Some Disclosures

ESRS 2 covers general disclosures, but only certainmetrics and targets under specific topical ESRS require external assurance.

Appendix C of ESRS 2 outlines which disclosures require assurance​.

Entity-Specific Exemptions & Phase-in Rules

Some disclosuresdo not require assurance if they are deemed immaterialbased on themateriality assessment​.

SMEs and first-time reportershavephased-in assurance requirements.

Thus,external assurance is not required for all ESRS 2 and topical ESRS disclosures, making the statementTrue.

Commission Delegated Regulation (EU) 2023/2772​

Compilation Explanations January - November 2024​

Official References:

Thegoal of assurancein sustainability reporting is toconfirm the reliabilityof sustainability disclosures, ensuring that reported information onrisks, management strategies, and performance dataisaccurate and verifiable.

Key aspects ofsustainability assuranceinclude:

Evaluating the credibility of reported sustainability risksand how organizations manage them.

Assessing compliance with CSRD and ESRS assurance requirements.

Ensuring data integrity and alignmentwith financial and sustainability disclosures.

Enhancing investor confidencein an organization’s sustainability reporting​.

CSRD and ESRS Assurance Requirements (Commission Delegated Regulation (EU) 2023/2772, Section 5.2)- Specifies assurance requirements for sustainability reporting​.

EU Sustainable Finance Platform Report (2025)- Confirms assurance processes are necessary to enhance trust in sustainability data​.

Official References: