Section 3.5 has been added to the new ESRS 1, and its title alone is interesting: Practical considerations in determining the material impacts, risks, and opportunities and their related topics to be reported, or loosely translated Practical considerations for identifying material impacts, risks, and opportunities and related reporting topics. The „considerations” stem from the fact that the section does not contain any new requirements or provisions, but merely serves to explain that significance testing does not have to be as daunting as is commonly believed.
Why is it worth familiarizing yourself with this section now and taking it into account when assessing materiality for the 2025 report? The double materiality principle and the detailed provisions governing it have not changed, and the same considerations can (and must!) be made when applying the „old” ESRS. Working in SR TEG and SR Board on simplifying the standards, we included in section 3.5 statements that were obvious to us already at the stage of developing the first version of the standards. They were not recorded at that time because they mainly talk about what not to do – and standards are meant to define what needs to be done. However, practice has shown that many audit firms and advisors approached materiality testing as a compliance task, expecting each company to do absolutely everything that could potentially be done to assess materiality. But you only need to do the minimum necessary to achieve the goal.
Section 3.5. reiterates the following points:
- It is not necessary to assess every possible impact, risk, or opportunity to determine which topics are reportable.
- The study can be conducted using a top-down approach (starting with topics and subtopics, and only then identifying significant impacts, risks, and opportunities for those considered relevant) or a bottom-up approach (starting with a list of various possible impacts, risks, and opportunities, and then, after identifying significant IROs, assigning them to topics and subtopics).
- It is not necessary to analyze all time horizons in relation to all impacts, risks, and opportunities.
- There is no need to analyze individual parameters of severity separately.
- It is not necessary to use quantitative data and scoring, as a qualitative assessment of whether a given impact, risk, or opportunity is significant may suffice.
- And finally (my favorite reminder): to identify significant impacts, risks, and opportunities, you must use reasonable, acceptable information that is available without excessive cost or effort.
I strongly recommend that you carefully read section 3.5. and practical considerations. It is very short, only one page long, and can help you conduct or update your significance tests today 😊
P.S. In just a week and a half, on September 3, 2025, the Polish Association of Listed Companies is organizing webinar on public consultations on simplified ESRS drafts. It is worth participating, as this is the first event dedicated to reporting after the summer break. The event is free for SEG member companies and those with subscription access.
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