‘We weren’t expecting 100+’: the Wild West of sustainability impacts, risks and opportunities
REP speaks to Anthesis about why some companies identify nine material IROs while others claim 120
No one expected all firms to have the same number of impacts, risks and opportunities (IROs) in their sustainability reports.
Still, with some companies identifying just nine and others claiming up to 120, the divergence seen in the first wave of mandatory EU disclosures has raised eyebrows.
“We were expecting a bit of ambiguity and difference, but not that there would be over 100 material IROs for some,” says Justine Vandermotten, a sustainability specialist at London-based consultancy Anthesis.
Every company currently covered by the EU’s Corporate Sustainability Reporting Directive (CSRD) must start the process by working out the topics on which their business activities have a significant impact, as well as those that either pose significant financial risks or present business opportunities.
The rules give a lot of flexibility to firms in terms of how they decide what their IROs are, but the process generally involves a mix of stakeholder feedback, qualitative data and third-party information.
So far, German construction firm Hochtief seems to have cast the net the widest, identifying 10 risks, nine opportunities, and more than 100 negative and positive impacts.
The firm declined to discuss the reasons for such high numbers, saying the process was complex.
Aluminium producer AMAG Austria Metall and Spanish renewables firm EDP Renováveis both identified more than 90 IROs.
Vandermotten says companies getting close to three-figures in their double materiality assessments probably have room for further consolidation.
“They’ve probably been just a bit too specific,” she tells Real Economy Progress.
According to analysis by Anthesis, the average number of IROs disclosed in the first batch of CSRD reports was 32.
It’s important to keep the list of material IROs manageable, Vandermotten says, “because you actually have to do things about them”.
They are supposed to be the basis for meaningful targets and action plans, for example.
More guidance is needed from regulators, she continues, noting that CSRD was designed based on the assumption that firms could simply apply their existing financial materiality approach to sustainability issues.
“But what we’re finding is that a lot of companies we work with don’t have that existing process in place, so they are looking for other methodologies, or other ways to do it.”
This may have prompted some businesses to overestimate their IROs, erring on the side of caution.
Not all, though.
Finnish energy technology manufacturer Wärtsilä identified just nine.
A spokesperson for the company told REP it set its threshold high “in order to concentrate on the most material topics”.
“Having fewer IROs allows us to focus on the areas that are most relevant for us”, they added.
Danish logistics firm DSV also disclosed nine.
It didn’t respond to a request for comment, but said in its sustainability statement that its initial mapping “identified more than 200 individual actual and potential IROs”.
Others with low numbers include Danish building manager ISS (11), insulation firm Rockwool (15) and Dutch recruiter Randstadt (12).