Key Points
- A sustainability matter is impact-material if the entity's activities cause or could cause significant effects on people or the environment.
- Severity of negative impacts is assessed on three dimensions: scale, scope, and irremediable character.
- For human rights impacts, ESRS 1.45 gives severity precedence over likelihood, so even a low-probability forced-labour risk can be material.
- Impact materiality and financial materiality are assessed separately; a matter that meets either threshold triggers a disclosure requirement.
What is Impact Materiality?
ESRS 1.43 defines a sustainability matter as impact-material when it relates to the entity's actual or potential, positive or negative effects on people or the environment over the short, medium, or long term. The entity assesses these effects across its own operations and its upstream and downstream value chain, including through products, services, and business relationships.
For negative impacts that have already occurred, the entity evaluates severity alone (ESRS 1.45). Severity has three components: scale (how grave the impact is), scope (how widespread it is), and irremediable character (whether the damage can be reversed). For negative impacts that have not yet occurred, the entity adds likelihood to the assessment. Positive impacts follow a simpler test: scale and scope for actual positives, plus likelihood for potential ones (ESRS 1.46).
The entity documents this assessment through the IRO assessment process described in ESRS 2 IRO-1, which requires disclosure of how the entity identified its impacts, risks, and opportunities and how it set thresholds for each severity dimension. EFRAG's Implementation Guidance IG 1 (finalised September 2025) confirms that qualitative evidence can suffice where quantitative scoring is impractical, provided the entity's reasoning is traceable.
Worked example: Bergstrom Skog AB
Client: Swedish forestry and paper company, FY2025, revenue EUR 75M, IFRS reporter, first-time CSRD preparer (large-entity scope). Bergstrom conducts its double materiality assessment ahead of its first sustainability statement.
Step 1 — Map the value chain and identify potential impacts
Bergstrom's operations include timber harvesting, pulp processing, and paper manufacturing. The sustainability team identifies 14 candidate impacts across ESRS E1 through S4. Two stand out for further assessment: biodiversity loss from clear-cutting (ESRS E4) and occupational health risks for forestry workers (ESRS S1).
Documentation note: record the value chain mapping, the full list of candidate impacts screened, and the rationale for shortlisting under ESRS 2 IRO-1. Attach stakeholder input (worker council minutes, environmental NGO correspondence).
Step 2 — Assess severity of actual negative impacts on biodiversity
Bergstrom harvested 320 hectares of boreal forest in FY2025. The sustainability team rates scale as high (permanent habitat removal), scope as moderate (confined to two concession areas totalling 1,200 hectares), and irremediable character as high (boreal forest regeneration takes 80 to 120 years). The impact is actual, so likelihood is not assessed.
Documentation note: record the severity rating for each of the three dimensions under ESRS 1.45, referencing the ecological survey report dated March 2025 and the concession area maps. State the threshold definitions the entity applied for "high" and "moderate."
Step 3 — Assess severity and likelihood of potential negative impacts on worker health
Bergstrom employs 185 forestry workers operating chainsaws and heavy machinery. Over the past five years the lost-time injury rate averaged 12.4 per 1,000 workers, above the Swedish industry benchmark of 8.1. A potential fatality from tree-felling operations is rated high on scale, narrow on scope (individual worker), high on irremediable character, and moderate on likelihood based on historical incident data.
Documentation note: record the severity and likelihood ratings under ESRS 1.45, the historical injury statistics sourced from Bergstrom's internal HSE database, and the industry benchmark from the Swedish Work Environment Authority.
Step 4 — Conclude on impact materiality and determine disclosure obligations
Both biodiversity loss and worker health risks exceed Bergstrom's severity thresholds. The entity must apply ESRS E4 (biodiversity) and ESRS S1 (own workforce) disclosure requirements. Eight of the original 14 candidate impacts fall below the thresholds and are documented as not material with supporting rationale.
Documentation note: record the final materiality conclusions in a summary table cross-referenced to each topical standard, the thresholds applied, and the date of management sign-off. This table becomes an appendix to the sustainability statement.
Conclusion: Bergstrom's impact materiality assessment is defensible because severity ratings rest on traceable evidence (ecological surveys, injury data, external benchmarks), the threshold definitions are documented before scoring begins, and the IRO-1 process disclosure explains how the entity moved from 14 candidates to two material topics.
Why it matters in practice
- Teams frequently assess impact materiality using the same financial-threshold logic they apply to IFRS materiality. ESRS 1.43-48 do not reference monetary amounts or percentages of revenue. The severity test (scale, scope, irremediable character) is qualitative by design. Applying a "5% of revenue" filter to environmental or social impacts misapplies the standard and risks omitting matters that are material from the impact perspective.
- The human-rights override in ESRS 1.45 is routinely overlooked. When potential impacts involve human rights (forced labour in the supply chain, for instance), severity takes precedence over likelihood. A low-probability but high-severity human-rights risk is material. Entities that screen out low-likelihood human-rights impacts during the IRO assessment fail to meet this requirement.
Impact materiality vs. financial materiality
| Dimension | Impact materiality | Financial materiality |
|---|---|---|
| Direction | Inside-out: effects of the entity on people and the environment | Outside-in: effects of sustainability matters on the entity's financial position and performance |
| Assessment criteria | Severity (scale, scope, irremediable character) and likelihood for potential impacts | Magnitude and likelihood of financial effects on cash flows, access to finance, or cost of capital |
| Human-rights override | Severity takes precedence over likelihood (ESRS 1.45) | No equivalent override; standard magnitude-and-likelihood test applies |
| Monetary thresholds | None; the test is qualitative | May reference financial thresholds where the entity can quantify the expected effect |
| Typical triggers | Environmental degradation, labour-rights violations, community displacement | Stranded assets, regulatory fines, reputational damage affecting revenue |
A sustainability matter can be material under one perspective, both, or neither. The entity assesses both dimensions separately and discloses the matter if either test is met. Conflating the two (running a single assessment that blends financial and impact criteria) violates ESRS 1.43 and ESRS 1.49.
Related terms
Frequently asked questions
How do I document an impact materiality assessment for the auditor?
Record the full list of sustainability matters screened, the severity and likelihood ratings applied to each, the threshold definitions used, and the evidence behind each rating. ESRS 2 IRO-1 requires disclosure of the process the entity followed to identify and assess material impacts. The audit file should contain the scoring matrix, the stakeholder input considered, and the date of management approval.
Does impact materiality apply to positive impacts too?
Yes. ESRS 1.46 requires the entity to assess positive impacts on the basis of scale and scope (for actual positives) and scale, scope, and likelihood (for potential positives). A company that funds reforestation or provides above-market wages in a low-income region would assess those impacts using the same structured process, though in practice most entities focus initial effort on negative impacts because those drive the majority of disclosure requirements.
Can I use the Omnibus simplifications to skip the impact materiality assessment?
No. The February 2026 Omnibus I package reduced ESRS datapoints from over 1,000 to approximately 320 and introduced a top-down approach for entities with straightforward value chains. Impact materiality remains a required assessment. The simplification allows entities to reach materiality conclusions more efficiently (using peer analysis, sector data, or strategic priorities rather than exhaustive bottom-up scoring), but the double materiality framework itself is unchanged.