Questions & Answers
(1) Consider an undertaking that has a business plan approved for a three-year duration. The undertaking expects a given impact or risk to arise in four to five years and be material then. Shall the matter be considered material for the reporting period?
(2) Consider a matter that is not assessed to be material over the short-, medium- or long-term horizon as of the reporting date, but – if assessed in four to five years – it might become material in the future. Should the undertaking consider this topic as not-material or as material?
- Sustainability matter only material in the future
Background
The question received by the submitter: ‘Our judgment is that one topic is not material for our enterprise, but that it will most probably become material within four to five years. Should we state the topic as non-material or as material (the business plan approved by the shareholders and sent to banks is for a three-year duration)?’ was split into two questions and rephrased to the above question to better separate the issues asked. The submitter gave the following background information to the question: ‘Water consumption will most probably become a material topic in Southern Europe for many preparers within five to ten years …’.
ESRS 1 paragraph 43 states:’ A sustainability matter is material from an impact perspective when it pertains to the undertaking’s material actual or potential, positive or negative impacts on people or the environment over the short-, medium- or long-term.’
ESRS 1 paragraph 49 states: ‘A sustainability matter is material from a financial perspective if it triggers or could reasonably be expected to trigger material financial effects on the undertaking. This is the case when a sustainability matter generates risks or opportunities that have a material influence, or could reasonably be expected to have a material influence, on the undertaking’s development, financial position, financial performance, cash flows, access to finance or cost of capital over the short-, medium- or long-term.’
Answer
(1) Consider an undertaking that has a business plan approved by for a three-year duration. The undertaking expects a given impact or risk to arise in four to five years and be material then. Shall the matter be considered material for the reporting period?
Yes, the materiality assessment is not limited to a business plan time-horizon.
The submitter clarifies that the topic in question relates to water consumption that will most probably become a material topic in Southern Europe for many preparers within five to ten years, which is a time horizon longer than the one used in the approved business plan.
The key question for the assessment of materiality from a financial point of view is whether water consumption generates for the undertaking risks or opportunities that have a material influence or that could reasonably be expected to have a material influence on the undertaking’s development, financial position, financial performance, cash flows, access to finance or cost of capital over the short-, medium- or long-term (ESRS 1 paragraph 49). This is not limited to material influence within the time horizon of the last approved business plan of the undertaking.
See also Question ID 1039 – Time horizon – only long-term material.
(2) Consider a matter that is not assessed to be material over the short-, medium- or long-term horizon as of the reporting date, but – if assessed in four to five years – it might become material in the future. Should the undertaking consider this topic as not-material or as material?
The matter is not material as of the reporting date.
As stated in Implementation Guidance 1 – Materiality assessment FAQ 7 How frequently should an undertaking update its sustainability materiality, ‘the materiality assessment is a dynamic process subject to the inherent evolution of the undertaking and needs to be considered for an update on an ongoing basis.’ Acknowledging such a dynamic process, it is possible that a matter assessed today be considered material neither from an impact nor from a financial perspective, but this assessment may change sometime in the future. This may happen if assumptions that have been used in the impact and financial materiality assessment today do not materialise as expected.
Relations
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A sustainability matter is material from a financial perspective if it triggers or could reasonably be expected to trigger material financial effects on the undertaking. This is the case when a sustainability matter generates risks or opportunities that have a material influence, or could reasonably be expected to have a material influence, on the undertaking’s development, financial position, financial performance, cash flows, access to finance or cost of capital over the short-, medium- or long-term. Risks and opportunities may derive from past events or future events. The financial materiality of a sustainability matter is not constrained to matters that are within the control of the undertaking but includes information on material risks and opportunities attributable to business relationships beyond the scope of consolidation used in the preparation of financial statements. | |
A sustainability matter is material from an impact perspective when it pertains to the undertaking’s material actual or potential, positive or negative impacts on people or the environment over the short-, medium- or long-term. Impacts include those connected with the undertaking’s own operations and upstream and downstream value chain, including through its products and services, as well as through its business relationships. Business relationships include those in the undertaking’s upstream and downstream value chain and are not limited to direct contractual relationships. | |
A sustainability matter is material from a financial perspective if it triggers or could reasonably be expected to trigger material financial effects on the undertaking. This is the case when a sustainability matter generates risks or opportunities that have a material influence, or could reasonably be expected to have a material influence, on the undertaking’s development, financial position, financial performance, cash flows, access to finance or cost of capital over the short-, medium- or long-term. Risks and opportunities may derive from past events or future events. The financial materiality of a sustainability matter is not constrained to matters that are within the control of the undertaking but includes information on material risks and opportunities attributable to business relationships beyond the scope of consolidation used in the preparation of financial statements. | |
A sustainability matter is material from an impact perspective when it pertains to the undertaking’s material actual or potential, positive or negative impacts on people or the environment over the short-, medium- or long-term. Impacts include those connected with the undertaking’s own operations and upstream and downstream value chain, including through its products and services, as well as through its business relationships. Business relationships include those in the undertaking’s upstream and downstream value chain and are not limited to direct contractual relationships. | |
A sustainability matter is material from an impact perspective when it pertains to the undertaking’s material actual or potential, positive or negative impacts on people or the environment over the short-, medium- or long-term. Impacts include those connected with the undertaking’s own operations and upstream and downstream value chain, including through its products and services, as well as through its business relationships. Business relationships include those in the undertaking’s upstream and downstream value chain and are not limited to direct contractual relationships. | |
A sustainability matter is material from a financial perspective if it triggers or could reasonably be expected to trigger material financial effects on the undertaking. This is the case when a sustainability matter generates risks or opportunities that have a material influence, or could reasonably be expected to have a material influence, on the undertaking’s development, financial position, financial performance, cash flows, access to finance or cost of capital over the short-, medium- or long-term. Risks and opportunities may derive from past events or future events. The financial materiality of a sustainability matter is not constrained to matters that are within the control of the undertaking but includes information on material risks and opportunities attributable to business relationships beyond the scope of consolidation used in the preparation of financial statements. |