IRO-1 – Description of the processes to identify and assess material pollution-related impacts, risks and opportunities

🗂️ ESRS E2 Pollution, page 3

The undertaking shall describe the process to identify material impacts, risks and opportunities and shall provide information on:

(a) whether the undertaking has screened its site locations and business activities in order to identify its actual and potential pollution-related impacts, risks and opportunities in its own operations and upstream and downstream value chain, and if so, the methodologies, assumptions and tools used in the screening;

(b) whether and how the undertaking has conducted consultations, in particular with affected communities.

Application Requirements

AR 1. When conducting a materiality assessment on environmental subtopics, the undertaking shall assess the materiality of pollution in its own operations and its upstream and downstream value chain, and may consider the four phases below, also known as the LEAP approach:

(a) Phase 1: locate where in its own operations and its upstream and downstream value chain the interface with nature takes place;

(b) Phase 2: evaluate the pollution-related dependencies and impacts;

(d) Phase 4: prepare and report the results of the materiality assessment.

AR 2. The materiality assessment for ESRS E2 corresponds to the first three phases of this LEAP approach. The fourth phase addresses the outcome of the process.

AR 3. The process to assess the materiality of impacts, dependencies, risks and opportunities shall consider the provisions in ESRS 2 IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities, and IRO-2 Disclosure Requirements in ESRS covered by the undertaking’s sustainability statement.

AR 4. The sub-topics covered by the materiality assessment under ESRS E2 include:

(a) pollution of air, water and soil (excluding GHG emissions and waste), microplastics, and substances of concern;

(b) dependencies on ecosystem services that help to mitigate pollution-related impacts.

AR 5. In Phase 1, to locate where in its own operations and its upstream and downstream value chain the interface with nature takes place, the undertaking may consider:

(a) the site locations of direct assets and operations and related upstream and downstream activities across the value chain;

(b) the site locations where emissions of water, soil and air pollutants occur; and

(c) the sectors or business units related to those emissions or to the production, use, distribution, commercialisation and import/export of microplastics, substances of concern, and substances of very high concern, on their own, in mixtures or in articles.

AR 6. Phase 2 relates to the evaluation of the undertaking’s impacts and dependencies for each material site or sector/business unit including by assessing the severity and likelihood of impacts on the environment and human health.

AR 7. In Phase 3, to assess its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may :

(a) identify transition risks and opportunities in its own operations and its upstream and downstream value chain by the categories of:

i. policy and legal: e.g., introduction of regulation, exposure to sanctions and litigation (e.g., negligence towards ecosystems), enhanced reporting obligations;

ii. technology: e.g., substitution of products or services by products or services with a lower impact, transition away from substances of concern;

iii. market: e.g., shifting supply, demand and financing, volatility or increased costs of some substances; and

iv. reputation: e.g., changing societal, customer or community perceptions as a result of an organisation’s role in pollution prevention and control;

(b) identify physical risks, e.g., sudden interruption of access to clean water, acid rain, or other pollution incidents that are likely to lead to or that have led to pollution with subsequent effects on the environment and society;

i. resource efficiency: decrease quantities of substances used or improve efficiency of production process to minimise impacts;

ii. markets: e.g., diversification of business activities;

iii. financing: e.g., access to green funds, bonds or loans;

iv. resilience: e.g., diversification of substances used and control of emissions through innovation or technology; and

v. reputation: positive stakeholder relations as a result of a proactive stance on managing risks.

AR 8. In order to assess materiality, the undertaking may consider Commission Recommendation (EU) 2021/2279 on the use of the Environmental Footprint methods to measure and communicate the life cycle environmental performance of products and organisations.

AR 9. When providing information on the outcome of its materiality assessment, the undertaking shall consider:

(a) a list of site locations where pollution is a material issue for the undertaking’s own operations and its upstream and downstream value chain; and

(b) a list of business activities associated with pollution material impacts, risks and opportunities.