ESRS-Professional Exam Dumps - GRI Sustainability Professionals Questions and Answers

Under the ESRS framework, financial materiality is assessed based on a combination of:

Likelihood of occurrence– The probability that a sustainability matter will have a financial impact.

Potential magnitude of financial effects– The scale of the impact on financial position, performance, cash flows, access to finance, or cost of capital over short-, medium-, or long-term periods​.

This is outlined in ESRS 1, which states that a sustainability matter isfinancially materialif it could reasonably be expected totrigger material financial effectson an undertaking. Financial materiality is not limited to issues under the direct control of the company; it includesdependencies on natural, human, and social resourcesthat could create risks or opportunities​.

Option A:The ESRS framework allows for bothqualitative and quantitative thresholds, not just monetary ones (e.g., revenue or costs)​.

Option C:Reputational risks can be financially material, as they may affect access to finance, cost of capital, or customer trust, ultimately influencing the company’s financial performance​.

Option D:Thefinancial materiality assessmentis conducted for theshort-, medium-, and long-term, not just the short term​.

Why the other options are incorrect:References:

Commission Delegated Regulation (EU) 2023/2772​

Compilation Explanations January - July 2024, ESRS 1 on Financial Materiality​

EFRAG Guidance on Double Materiality and Risk Assessments​

TheEU Taxonomyand theESRS digital taxonomyserve different purposes in sustainability reporting:

EU Taxonomyis a classification system that identifiesenvironmentally sustainable economic activitiesand establishes criteria for determining their contribution to environmental objectives. It is primarily used to guide investment decisions and financial disclosures​.

ESRS Digital Taxonomyis a structureddigital frameworkthat ensures sustainability disclosures aremachine-readable, standardized, and comparableunder theCorporate Sustainability Reporting Directive (CSRD)​.

Key Differences:Aspect

EU Taxonomy

ESRS Digital Taxonomy

Purpose

Classifies sustainable economic activities

Enables structured digital sustainability reporting

Scope

Environmental focus on investments & economic activities

Comprehensive reporting across environmental, social, and governance (ESG) areas

Users

Financial institutions, investors

Reporting entities, auditors, regulators

Regulation

UnderEU Taxonomy Regulation (2020/852)

UnderCSRD (Directive 2022/2464/EU)

References:

EU Platform on Sustainable Finance Report: Simplifying the EU Taxonomy​

Commission Delegated Regulation (EU) 2023/2772​

The statement that "Policymakers and regulators worldwide are increasingly mandating limited assurance for sustainability reporting in Europe and mandatory assurance in all Asian and African countries" isfalsefor the following reasons:

Limited Assurance in Europe

Under theCorporate Sustainability Reporting Directive (CSRD), theEuropean Union (EU) is progressively implementing mandatory assurance for sustainability reporting, but it isstarting with limited assurancebefore transitioning toreasonable assuranceby 2028​.

TheCommittee of European Auditing Oversight Bodies (CEAOB)has issuednon-binding guidelines on limited assuranceto harmonize the approach across EU member states​.

No Universal Mandatory Assurance in Asia and Africa

Sustainability assurancevaries by countryinAsia and Africa, with some jurisdictions adoptingvoluntaryorlimitedrequirements rather thanmandatory assurance.

TheEU approachis influencing global discussions, butthere is no blanket requirementfor full mandatory assurance acrossallAsian and African countries​.

While certainAsian countries (e.g., Japan, Singapore, China, and India)are enhancing their sustainability reporting frameworks, assurance requirements remaindiverse and sector-dependent.

InAfrica, sustainability reporting is growing, especially in South Africa underKing IV principles, but assurance isnot uniformly mandatoryacross the continent​.

Limited assurance is currently being phased in across the EU, but not yet fully mandated at the reasonable assurance level.

There is no global requirement for mandatory assurance across all Asian and African countries.

Therefore, the statement isfalse.

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

EU CSRD Recital 60: Roadmap for assurance from limited to reasonable​.

CEAOB Limited Assurance Guidelines (September 2024)​.

Thedouble materiality assessmentinvolves identifying sustainability matters that are material either from:

An impact perspective(the organization's effects on people and the environment).

A financial perspective(how sustainability matters affect the organization financially).

Thecorrect stepsin conducting this assessment include:

(A) Comparing identified material topics with ESRS 1 AR 16– This ensures alignment withpredefined sustainability mattersin ESRS​.

(C) Using ESRS 2 IRO-1– This disclosure requirement mandates companies toreport on their methodology for identifying impacts, risks, and opportunities​.

(D) Following SBM-3 of ESRS 2– This section provides requirements fordisclosing the material impacts, risks, and opportunities identified through the materiality assessment​.

(B) False:Entity-specific disclosures must coverall material sustainability topics, even those not explicitly covered in ESRS​.

(E) False:Both financial and impact materiality must be considered(double materiality), not just financial materiality​.

(F) False:Double materiality assessments are mandatoryfor all organizations reporting under ESRS​.

Commission Delegated Regulation (EU) 2023/2772, Section 3.3 on Double Materiality​

EFRAG Compilation on Double Materiality Assessments, providing step-by-step guidance on ESRS compliance​

Why the other options are incorrect:References:==============

Thedouble materiality assessment processconsists of multiple steps, withStep A: Understanding the Contextfocusing on setting the groundwork for identifying material impacts, risks, and opportunities (IROs).

Step A includes:

Mapping the organization's value chain (Option A)

This step involves identifying all elements of the organization's value chain, including suppliers, distributors, and business partners, to understand where sustainability impacts occur.

It helps in pinpointing potential sustainability matters, risks, and opportunities related to both impact and financial materiality​.

Engaging with affected stakeholders to gather input (Option B)

Stakeholder engagement is a critical part of the materiality assessment as it informs the organization about direct and indirect sustainability impacts.

The ESRS guidance stresses that businesses must engage with affected stakeholders (e.g., employees, communities, consumers) and sustainability experts as part of the due diligence process​.

Analyzing the legal and regulatory landscape (Option C)

Organizations must review applicable laws, regulatory frameworks, and international sustainability commitments that may affect their sustainability reporting obligations.

This ensures compliance withEU regulations (CSRD, ESRS, Taxonomy Regulation, SFDR)and other relevant legal requirements​.

D. Developing a list of material risks and opportunities

This step belongs toStep B: Identifying Material Sustainability Matters, where the organization formally identifies and assesses material IROs. Step A is only about gathering contextual information to inform this process​.

Commission Delegated Regulation (EU) 2023/2772, Section 3.3- Double materiality and materiality assessment process​.

EFRAG IG 1: Materiality Assessment, Chapter 2.2- Understanding the context and engagement with affected stakeholders​.

EFRAG Compilation of Explanations January–November 2024- Provides clarifications on stakeholder engagement and legal context review in Step A​.

Incorrect Answer:Official References:

Adigital reporting platformunder ESRS is designed to enhance the efficiency and accuracy of sustainability disclosures. It must enable seamless reporting and compliance monitoring through advanced digital features. The defining elements include:

(A) Structured data formats

Digital platforms must support structured formats likeXBRL (eXtensible Business Reporting Language), ensuringmachine-readability and interoperabilitywith financial reporting standards​.

(C) Interactive dashboards

Platforms often providevisualization tools and dashboardsto facilitate analysis and comparison of sustainability data across different periods and entities​.

(D) Real-time updates and compliance tools

Digital reporting solutions should offerreal-time data integrationto enable ongoing compliance tracking and alignment withevolving regulatory requirements​.

(B) Manual data entry processes

Manual entry isnot a characteristicof a digital reporting platform. Instead, digital platforms prioritizeautomation, integration, and structured data processingto improve efficiency and reduce errors​.

Commission Delegated Regulation (EU) 2023/2772, ESRS 1, Section 8.1 & 9.2– Establishes digitalization and connectivity requirements for sustainability reporting​.

EFRAG Digital Reporting Guidelines (2024)– Defines structured data standards and compliance automation in ESRS reporting​.

Incorrect Option:Official References:

Not all EU Member States have decided that only statutory financial auditors are allowed to conduct the assurance of the sustainability statement. TheCorporate Sustainability ReportingDirective (CSRD)mandates that sustainability reports beassuredby an external party, but it allows Member States to decide whether assurance engagements can be performed by firms other than statutory financial auditors.

Limited Assurance Requirement:

TheCSRD introduces a phased approachtoassurance, starting withlimited assuranceand transitioning toreasonable assuranceover time (expected by 2028).

Initially,limited assuranceis required across all Member States.

Flexibility for Member States:

EU Member Stateshave discretionto allowother independent assurance service providersto conduct the sustainability assurance, in addition to statutory auditors.

Some countries mayrestrictsustainability assurance to statutory auditors, butthis is not an EU-wide rule​.

Upcoming EU Assurance Standards:

TheEuropean Commissionis working on developing acommon EU assurance standardfor sustainability reporting.

TheCommittee of European Auditing Oversight Bodies (CEAOB)has issued non-bindingguidelinesonlimited assurancefor sustainability reporting​.

Key Provisions:Thus,the statement is falsebecausenot all EU Member States have restricted sustainability assurance to statutory financial auditors. Some allowother independent assurance providersto conduct the engagements.

Official References:

CSRD (Directive (EU) 2022/2464) Assurance Provisions​.

EU Platform on Sustainable Finance Report (February 2025) – Assurance Standards and Guidelines​.

CEAOB Guidelines on Limited Assurance for Sustainability Reporting (September 2024)​.

According to the European Sustainability Reporting Standards (ESRS) under the Commission Delegated Regulation (EU) 2023/2772, stakeholders are defined as individuals or groups who can affect or be affected by the undertaking. The ESRS distinguishes between two main groups of stakeholders:

Affected stakeholders: These are individuals or groups whose interests are affected or could be affected – positively or negatively – by the undertaking’s activities and its direct and indirect business relationships across its value chain.

Users of sustainability statements: These include primary users of general-purpose financial reporting (e.g., existing and potential investors, lenders, and other creditors such as asset managers, credit institutions, and insurance undertakings) and other users, including the undertaking’s business partners, trade unions, social partners, civil society and non-governmental organizations, governments, analysts, and academics​.

Furthermore, engagement with affected stakeholders is a crucial aspect of the undertaking’s ongoing due diligence process and sustainability materiality assessment. This involves identifying and assessing actual and potential negative impacts to inform the materiality assessment process for sustainability reporting​.

Official References:

Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU on sustainability reporting standards​.

ESRS 1: General Requirements, Section 3.1 (Stakeholders and their relevance to the materiality assessment process).

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:

Under the ESRS, engagement with affected stakeholders is a core element of due diligence. The outcome of the due diligence process informs the materiality assessment. The ESRS encourage further engagement with stakeholders to collect their input and feedback on the organization's conclusions regarding the material impacts, risks, and opportunities.

This sequence is supported by the official text of Commission Delegated Regulation (EU) 2023/2772 and various ESRS-related documents. The standard emphasizes due diligence as astarting point for the materiality assessment process. The assessment then determines the organization's material impacts, risks, and opportunities, which is crucial for effective stakeholder engagement.

Due Diligence:The ESRS process starts with due diligence, as outlined in the Commission Delegated Regulation (EU) 2023/2772, to identify relevant sustainability matters and affected stakeholders.

Materiality Assessment:The findings from the due diligence process are then used to inform the materiality assessment, as discussed in EFRAG's guidance documents.

Material Impacts, Risks, and Opportunities:Finally, the organization engages with stakeholders to review and refine its conclusions about material impacts, risks, and opportunities, as per the ESRS requirements.

References:

Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU​

EFRAG Guidance on Materiality Assessment in ESRS​​

ESRS Due Diligence Framework, as outlined in Compilation Explanations and Mapping Sustainability Matters with Disclosure Requirements​​

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