Decarbonisation: meaning, technology and goals
1 min
Level
In this article, we delve into the importance of decarbonising our societies and outline actionable steps companies can take today to embark on their net-zero journey.
The voice of impact
ESG / CSR
Industries
MEASURE
ACT
COMFORM
Impacts, Risks, and Opportunities (IRO) for CSRD Reporting
Level
The Corporate Sustainability Reporting Directive (CSRD) introduces new requirements for how companies assess and disclose sustainability issues. A key element of this is Impacts, Risks, and Opportunities (IROs) - a framework that ensures businesses report not just on their sustainability impacts but also on the risks and opportunities that come with them.
IROs play a crucial role in determining what’s material for a company’s sustainability report. By identifying where the business has an impact, where sustainability issues pose risks, and where opportunities for growth exist, companies can prioritise what needs to be disclosed under the European Sustainability Reporting Standards (ESRS).
In this article, we’ll break down what IROs are, how to identify and assess them, and what CSRD requires in terms of disclosure.
What are Impacts, Risks, and Opportunities (IROs)?
“ IROs serve as the foundation for determining what’s material in a company’s sustainability report. By identifying and assessing them, businesses can prioritise key sustainability issues and ensure their reporting aligns with the European Sustainability Reporting Standards (ESRS). ”
The Impacts, Risks, and Opportunities (IROs) framework is a key part of sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD). It requires companies to assess and disclose how sustainability issues affect both their business and the wider world.
Under the European Sustainability Reporting Standards (ESRS), IROs are classified into three categories:
- Impacts: The positive or negative effects a company has on the environment and society. This includes factors like carbon emissions, biodiversity loss, or improvements in employee well-being.
- Risks: Sustainability-related financial risks that could impact the company’s business performance. These can stem from regulatory changes, climate-related disruptions, supply chain instability, or shifting market expectations.
- Opportunities: The potential benefits a company can gain from sustainability initiatives. This could mean cost savings from energy efficiency, access to new green markets, or competitive advantages from sustainable innovations.
IROs help companies identify and prioritise sustainability topics that matter most for reporting, ensuring that disclosures focus on what is truly significant.
The role of IROs in double materiality
Under CSRD, companies must assess which sustainability topics are material through a double materiality assessment. This ensures that reporting captures both:
- Impact materiality: How a company’s operations affect people and the environment (eg. pollution, resource depletion, human rights).
- Financial materiality: How sustainability issues pose risks or create opportunities for the company (eg. regulatory fines, reputational damage, or cost savings from sustainable practices).
IROs connect these two perspectives, acting as the foundation of materiality assessments. Because material IROs determine which sustainability topics are considered significant, they directly dictate a company’s ESRS disclosure requirements. In other words, by identifying where the company has an impact, where sustainability issues create financial risks, and where opportunities exist, businesses can determine not only which topics must be disclosed but also how these disclosures are structured within the ESRS framework.
How to identify and assess IROs
Steps to Identifying IROs
Identifying Impacts, Risks, and Opportunities (IROs) is the first step in CSRD reporting. This process ensures that companies focus on the most relevant sustainability topics for their business.
| Step | Key Actions |
|---|---|
| 1. Start with a Broad List of Potential IROs |
- Review ESRS guidance on ESG topics - Analyse internal data and sustainability reports - Benchmark against industry peers - Engage with stakeholders |
| 2. Categorise IROs into Impacts, Risks, and Opportunities |
- Classify sustainability issues into: * Impacts: Effects on people & planet * Risks: Financial threats from sustainability factors * Opportunities: Business benefits from sustainability trends |
| 3. Assess IROs Across the Value Chain |
- Consider sustainability impacts across: * Upstream (suppliers, raw materials) * Direct operations (factories, employees) * Downstream (products, customers) |
1. Start with a broad list of potential IROs
Companies should begin by mapping out all potential sustainability issues that could be relevant to their operations. This can be done by:
- Reviewing ESRS guidance on key environmental, social, and governance (ESG) topics.
- Referring to EFRAG’s pre-defined list of sustainability matters in ESRS 1, AR 16 as a structured starting point for identifying potential IROs. This framework provides companies with a comprehensive reference list, covering key environmental and social issues that may be material.
- Analysing internal data and sustainability reports.
- Benchmarking against industry peers and sector-specific frameworks (eg. Sustainability Accounting Standards Board - SASB, Global Reporting Initiative - GRI, MSCI).
- Engaging with stakeholders (employees, investors, regulators) to understand external expectations.
2. Categorise IROs into Impacts, Risks, and Opportunities
Once companies have a longlist, they should classify each item into one of the three IRO categories:
- Impacts: How the company affects people and the planet (eg. pollution, deforestation, fair labor practices).
- Risks: Financial threats linked to sustainability factors (eg. carbon pricing, supply chain disruptions).
- Opportunities: Business benefits from sustainability initiatives (eg. green product innovation, cost savings from energy efficiency).
3. Assess IROs across the value chain
A company’s sustainability footprint extends beyond its own operations. IRO assessments should consider:
- Upstream impacts (eg. supplier emissions, raw material sourcing).
- Direct operations (eg. factory emissions, employee well-being).
- Downstream impacts (eg. product lifecycle emissions, customer expectations).
Once IROs are identified and categorised, the next step is to assess which ones are material.
Close
Determining the materiality of IROs
For impacts, materiality is assessed based on the scale, extent, reversibility, and likelihood of an issue. This helps companies determine which sustainability impacts - whether positive or negative - are significant enough to be reported under CSRD.
Each impact is evaluated using the following criteria:
Scale: How severe is the impact?
- A minor impact (eg. low water usage in a single facility) may not be material.
- A large-scale impact (eg. significant carbon emissions contributing to climate change) is more likely to be material.
Extent: How widespread is the impact?
- A localised issue (eg. affecting one community) may be less material than one with global consequences (eg. deforestation across an entire supply chain).
Reversibility: Can the impact be mitigated or undone?
- Reversible impacts (eg. temporary air pollution from construction) may be less material.
- Irreversible impacts (eg. biodiversity loss, long-term environmental damage) are often highly material.
Likelihood: How probable is the impact?
- For current impacts, this is not a factor as it’s already occurring.
- For potential future impacts, companies must assess how likely they are to happen.
ESRS does not prescribe a specific scoring methodology, but companies must apply a structured approach and justify their chosen methodology. Many businesses use a numerical scale (eg. 1-5) to evaluate each criterion and establish materiality thresholds. Setting clear thresholds ensures consistency and comparability across sustainability reports.
Assessing the materiality of risks and opportunities
Unlike impacts, which focus on how a company affects the environment and society, risks and opportunities look at how sustainability issues can financially affect the company itself.
To determine materiality, businesses need to evaluate two key factors:
- Financial impact: How significant could the risk or opportunity be for the company’s finances? This includes potential costs (eg. regulatory fines, supply chain disruptions) or financial gains (eg. cost savings from energy efficiency, access to green markets).
- Probability: How likely is the risk or opportunity to occur? Companies must assess whether it is a short-term (1-3 years), medium-term (3-5 years), or long-term (5+ years) concern.
Again, to ensure a structured approach, companies typically use a scoring system - for example, rating each IRO on a 1-5 scale based on severity and likelihood. Higher-scoring risks and opportunities are considered material and require disclosure, while lower-scoring ones may be excluded.
To improve accuracy, businesses may also:
- Compare findings with sector-specific benchmarks such as industry peers, and regulatory reports.
- Use scenario analysis to project how risks and opportunities could evolve under different conditions.
Although ESRS does not mandate stakeholder engagement, it is strongly recommended as part of the materiality assessment process. Engaging with investors, regulators, and industry peers can help validate findings, align with market expectations, and enhance reporting credibility. Companies should document any stakeholder input used in their materiality assessments.
Finalising material IROs
Once a company has assessed the materiality of its Impacts, Risks, and Opportunities (IROs), the next step is to refine and organise the findings for CSRD reporting. This ensures that reporting is structured, relevant, and transparent.
To finalise the list of material IROs, companies should:
Group related IROs into broader themes:
While not explicitly required under ESRS, consolidating similar IROs under key sustainability themes is a best practice that can enhance clarity and reduce redundancy in reporting.
- For example, instead of listing multiple risks linked to carbon pricing, emissions regulations, and climate-related fines, a company could group them under ‘climate change financial risks’.
- Similarly, separate biodiversity-related impacts (e.g., deforestation, habitat destruction) could be categorised under ‘ecosystem impacts’.
This approach helps streamline CSRD reports, making them more digestible for stakeholders while ensuring key sustainability topics remain prominent.
Validate materiality decisions through stakeholder engagement
Although ESRS does not mandate stakeholder engagement, it is widely recommended as part of the materiality assessment process. By consulting key stakeholders, companies can validate their assessment, address potential blind spots, and align with evolving market expectations.
- Internal stakeholders (eg. sustainability teams, finance departments) should review the final materiality assessment to ensure alignment with corporate strategy.
External stakeholders (eg. investors, regulators, industry experts) can provide insights into whether the company’s assessment aligns with broader market expectations.
“ Stakeholder engagement helps companies avoid reporting gaps and ensures materiality decisions are well-founded. ”
Document the methodology for transparency
Companies must explain how material IROs were determined, including:
- The criteria and scoring system used.
- The thresholds that determined materiality.
- Any assumptions or data sources used in the assessment.
This level of transparency helps stakeholders understand the company’s reporting decisions and ensures compliance with CSRD requirements.
By following these steps, companies can streamline their sustainability reporting, making it both comprehensive and accessible.
CSRD disclosure requirements for IROs
Once Impacts, Risks, and Opportunities (IROs) have been identified and assessed, companies must ensure they are properly disclosed in their sustainability reports. Under the European Sustainability Reporting Standards (ESRS), two key disclosure requirements apply:
- IRO-1: The process of identifying and evaluating IROs
- IRO-2: Publishing material sustainability topics
These disclosures ensure transparency and provide stakeholders with a clear view of how a company identifies, assesses, and prioritises sustainability matters.
Process of identifying and evaluating IROs (IRO-1)
Companies must explain the methodology used to assess IROs, detailing how they determine which sustainability issues are material. This includes:
- The process for identifying and assessing IROs: Companies must describe how they compiled their list of IROs, including the frameworks and industry standards used (eg. ESRS, SASB, GRI).
- Integration into risk management: Businesses should show how IRO assessments are embedded in their overall corporate risk strategy, ensuring sustainability risks are managed alongside financial and operational risks.
- Sources of data and assumptions used: Transparency is key, so companies must disclose which data sources informed their assessments, whether internal ESG data, industry benchmarks, or stakeholder input.
- Disclosure of methodological changes: If a company has modified its materiality assessment methodology from the previous reporting period, it must clearly disclose these changes, including the rationale behind adjustments.
Providing this level of detail reinforces credibility and helps investors and regulators understand how sustainability risks and opportunities are managed.
Publishing material issues (IRO-2)
Once material IROs have been assessed, companies must publish a structured list of sustainability topics in their CSRD report. This includes:
- A clear list of material issues: Companies should present a summary of which IROs are material, ensuring they are linked to specific ESRS disclosure requirements.
- Specific disclosure for climate change: If a company deems climate change non-material, it must provide a detailed justification, including an assessment of future conditions that could change its materiality status. This requirement ensures companies are accountable for ongoing climate-related risks and opportunities, even if they do not currently classify them as material.
- Supporting data and references: A table of relevant data points from EU sustainability regulations should be included to provide transparency and context for materiality decisions.
By following these disclosure requirements, companies can demonstrate compliance with CSRD, enhance investor confidence, and provide stakeholders with a clear and structured overview of their sustainability priorities.
Challenges and best practices for IRO management
Effectively managing Impacts, Risks, and Opportunities (IROs) is critical for CSRD compliance, but it presents several challenges. Companies must assess sustainability issues holistically, ensuring that reporting is accurate, relevant, and aligned with stakeholder expectations. However, data complexity, stakeholder engagement, and the lack of standardised assessment methods often create obstacles.
Key challenges include:
| Challenge | Explanation |
|---|---|
| Complexity of data collection | IRO assessments require integrating diverse financial, operational, and sustainability data from multiple sources. Aligning impact data with financial risks and opportunities is challenging, especially for Scope 3 emissions or global supply chain impacts. |
| Stakeholder engagement | Balancing the expectations of investors, regulators, employees, and customers is difficult. Stakeholders may prioritise different sustainability topics, making it challenging to determine what is material for reporting. |
| Lack of standardised thresholds | ESRS provides guidelines but no fixed scoring system for determining materiality. Companies must develop their own criteria for evaluating impacts, risks, and opportunities—leading to inconsistencies across industries. |
| Regulatory complexity | CSRD requirements overlap with other reporting frameworks (e.g., GRI, SASB, TCFD), requiring companies to navigate multiple compliance expectations. |
| Dynamic sustainability risks | Sustainability challenges evolve due to regulatory updates, climate change developments, and shifting consumer demands, requiring frequent reassessments of IROs. |
Best practices for effective IRO reporting
To address these challenges, companies can implement structured approaches to improve IRO assessments and reporting clarity:
| Best Practice | Why It Matters |
|---|---|
| Use software tools to streamline IRO assessments | Automated platforms help collect, analyse, and document IROs, reducing manual effort and ensuring consistent materiality assessments. |
| Incorporate cross-functional teams | ESG, finance, risk, and compliance teams should collaborate to ensure IROs are assessed holistically, aligning sustainability impacts with financial risks. |
| Develop clear materiality thresholds | Establishing internal scoring systems (e.g., rating impacts from 1-5) ensures consistency and comparability in IRO evaluations. |
| Engage stakeholders proactively | Consulting investors, customers, and regulators ensures material IROs align with market expectations and enhances credibility. |
| Regularly update materiality assessments | Companies should review IROs annually or in response to regulatory changes to reflect evolving sustainability risks and opportunities. |
How Greenly can help your company
Greenly provides end-to-end support for companies navigating CSRD reporting, helping to streamline compliance. Our platform offers materiality assessments, structured data collection, and expert-led guidance to help businesses meet ESRS requirements with ease.
How Greenly can help with CSRD compliance:
- Built-in EFRAG-Compliant Scoring: Industry-specific materiality assessments to align with CSRD and ESRS standards.
- AI-Driven ESRS Data Collection: Streamlined data mapping and guided questionnaires to collect relevant sustainability information seamlessly.
- Automated CSRD Reports with XBRL: Fully compliant xHTML exports with XBRL tagging, ensuring seamless submission and regulatory alignment.
- Expert Support Every Step: Access to Greenly’s CSRD and climate experts, including trainings, follow-ups, and advisory tools to help businesses navigate their reporting obligations.
With Greenly’s automated tools and expert guidance, companies can assess, manage, and report on their sustainability impacts, ensuring full CSRD compliance while unlocking opportunities for transformative sustainability. Get in touch with us today to find out more.
Close
Sources
- Greenly, What is the Corporate Sustainability Reporting Directive?, https://greenly.earth/en-us/blog/company-guide/what-is-the-corporate-sustainability-reporting-directive-csrd
- Greenly, Our guide to European Sustainability Reporting Standards ESRS, https://greenly.earth/en-us/blog/company-guide/our-guide-to-european-sustainability-reporting-standards-esrs
- European Commission, Implementing and delegated acts - CSRD, https://finance.ec.europa.eu/regulation-and-supervision/financial-services-legislation/implementing-and-delegated-acts/corporate-sustainability-reporting-directive_en
- Sami, CSRD: everything you need to know about impacts, risks and opportunities (IROs), https://www.sami.eco/en/blog/csrd-impacts-risks-opportunities-iro
- Greenly, Carbon emissions: what you need to know, https://greenly.earth/en-us/blog/ecology-news/carbon-emissions-what-you-need-to-know
- Greenly, What does biodiversity loss mean for humankind?, https://greenly.earth/en-us/blog/ecology-news/what-does-biodiversity-loss-mean-for-humankind
- Greenly, Our guide to the CSRDs double materiality assessment, https://greenly.earth/en-us/blog/company-guide/our-guide-to-the-csrds-double-materiality-assessment
- Greenonomy, How to Identify Impacts, Risks, and Opportunities (IROs) for CSRD Reporting, https://www.greenomy.io/blog/how-to-identify-impacts-risks-and-opportunities-iros-for-csrd-reporting
- EFRAG, Mapping sustainability matters with disclosure requirements, https://www.efrag.org/sites/default/files/media/document/2024-12/ID%20177%20%E2%80%93%20Mapping%20sustainability%20matters%20(ESRS%201%20AR%2016)%20with%20Disclosure%20Requirements.pdf
- Greenly, The Sustainability Accounting Standards Board SASB, https://greenly.earth/en-gb/blog/company-guide/the-sustainability-accounting-standards-board-sasb
- Greenly, The GRI (Global Reporting Initiative): how to implement it, https://greenly.earth/en-us/blog/company-guide/the-gri-global-reporting-initiative-how-to-implement-it
- Greenly, Deforestation definition, effects and solutions, https://greenly.earth/en-gb/blog/ecology-news/deforestation-definition-effects-and-solutions
- Greenly, Why a global carbon price is needed, https://greenly.earth/en-gb/blog/ecology-news/why-a-global-carbon-price-is-needed
- Greenly, Climate change in 2022: where do we stand?, https://greenly.earth/en-us/blog/ecology-news/climate-change-in-2022-where-do-we-stand
- Greenly, Does transparency benefit or harm your company?, https://greenly.earth/en-gb/blog/company-guide/does-transparency-benefit-or-harm-your-company
- Greenly, What is ESG data and how to use it, https://greenly.earth/en-us/blog/company-guide/what-is-esg-data-and-how-to-use-it
More articles
View all
What is Lean Management?
1 min
Level
In this article, we’ll explain what lean management is, the five principles, and how your company can get started with lean management.
The Carbon Border Adjustment Mechanism (CBAM)
1 min
Level
In this article we’ll explore what the CBAM is, why it’s been created, and what importers need to know ahead of its introduction.
What are the 3 Pillars of Corporate Sustainability?
1 min
Level
What are the 3 pillars of corporate sustainability and why are they important?