Preparing anESRS reportinvolves multiple key steps to ensure compliance with CSRD requirements. Below is an evaluation of each option:

A. True–Internal controlsandstakeholder engagementare critical for ensuring accurate sustainability reporting. Stakeholders play a role inmateriality assessmentsand governance structures​.

B. True–Materiality assessmentis essential to determinewhich sustainability matters are most relevantfor disclosure. The ESRS framework requires organizations to report only onmaterialsustainability topics​.

C. False–Stakeholder opinions are crucialin sustainability reporting. Organizations must engage withemployees, customers, investors, and affected communitiesto identify material sustainability matters​.

D. True–Benchmarking and gap analysishelp companies compare their sustainability performance againstESRS requirements, industry best practices, and peer organizations​.

E. False–Sustainability reporting goes beyond financial data collection.The ESRS requiresenvironmental, social, and governance (ESG) disclosures, which include qualitative and quantitative indicators​.

F. True–Planning for external assuranceis critical under the CSRD mandate, aslimited assurance is required initially, progressing toreasonable assurance by 2028​.

Key Steps in ESRS Report PreparationStep

Purpose

Internal Controls & Stakeholder Engagement

Ensure accuracy and transparency in reporting

Materiality Assessment

Identify key sustainability topics for disclosure

Benchmarking & Gap Analysis

Compare with industry standards and ESRS requirements

External Assurance Planning

Prepare for third-party validation of sustainability data

Commission Delegated Regulation (EU) 2023/2772, Sections onMateriality Assessment, Internal Controls, and Assurance​.

Official References:

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)​.

Thesustainability statementunder ESRS is structured according toESRS 1 and ESRS 2, outlining specific disclosure requirements. The required disclosures include:

General Disclosure Requirements from ESRS 2

ESRS 2 outlinesgeneral disclosure requirements, including governance, strategy, and impact, risk, and opportunity management (IROs). These disclosures are mandatory for all undertakings, providing the foundation of the sustainability statement​.

✅(A) is correct

Environmental Objectives under the EU Taxonomy Regulation

Companies must disclose theiralignment with the EU Taxonomy Regulation, particularly underArticle 8 of Regulation (EU) 2020/852, which includes financial and non-financial companies' obligations regarding taxonomy-aligned activities​.

✅(B) is correct

Financial Performance Metrics from IFRS Reports

Financial metrics from IFRS are NOT a required disclosure under ESRS. The sustainability statement focuses on non-financial reporting, whilefinancial performance remains under IFRS standards in financial statements.

❌(C) is incorrect

Governance-Related Information Determined by the Materiality Assessment

Governance disclosures (ESRS G1 Business Conduct)include transparency about policies, risk management, and ethical business practices. Themateriality assessment determines the necessary governance disclosuresbased on entity-specific risks and opportunities​.

✅(D) is correct

Conclusion:Thesustainability statement must include general disclosure requirements (A), environmental objectives under the EU Taxonomy (B), and governance-related information based on materiality (D). Financial performance metrics from IFRS reports (C) are not required.

Commission Delegated Regulation (EU) 2023/2772​

Compilation Explanations January - July 2024​

Official References:

DuringStep Bof thedouble materiality assessment process, organizations mustidentify actual and potential impacts, risks, and opportunities (IROs). The ESRS framework recommends the following methods:

A. The list of sustainability matters in ESRS 1 AR 16✅

ESRS 1 Application Requirement (AR) 16provides acomprehensive reference listof sustainability matters to consider when identifying IROs.

This list includesenvironmental, social, and governance topicsaligned withEU sustainability objectives​.

C. Due diligence processes✅

ESRS requires organizations touse due diligence processesto identifynegative sustainability impacts.

Due diligence aligns with frameworks such as theOECD Guidelines for Multinational Enterprisesand theUN Guiding Principles on Business and Human Rights​.

This ensures that potentialrisks and opportunitiesare assessed based oninternational sustainability standards.

D. Feedback from stakeholders✅

Stakeholders, includingemployees, suppliers, customers, and affected communities, providecrucial insightsinto sustainability impacts.

ESRSmandates engagement with affected stakeholdersas part of theIRO identification process​.

Financial materiality thresholds apply later in the process (Step C)when evaluating thefinancial impact of sustainability matters.

Step Bfocuses only on identifying IROs, makingfinancial thresholds irrelevant at this stage​.

Why is B. Financial materiality thresholds❌incorrect?Conclusion:Organizations should usethe ESRS 1 AR 16 sustainability matters list, due diligence processes, and stakeholder feedbacktoidentify IROsin Step B of the double materiality assessment.Financial materiality thresholds do not apply in this step.

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

Commission Delegated Regulation (EU) 2023/2772, ESRS 1, AR 16:List of Sustainability Matters for Identifying IROs​.

EFRAG Compilation of Explanations (January - July 2024): Confirmation thatdue diligence and stakeholder inputare part ofIRO identification​.

Entity-specific disclosures are required if a material sustainability matter is not covered or sufficiently detailed in the ESRS. According toESRS 1, paragraph 11, if an undertaking identifies an impact, risk, or opportunity that isnot adequately coveredby an ESRS but ismaterial due to itsspecific facts and circumstances, it must provideadditional entity-specific disclosures. This ensures that users of sustainability reports receive relevant and complete information​.

ESRS 1, paragraph 11:

Requires entity-specific disclosures when material sustainability matters are missing or not sufficiently covered in the ESRS.

ESRS 1, paragraph 30:

Mandates that companiesmustdisclose additional entity-specific disclosures if material matters are not covered with sufficient granularity in ESRS​.

ESRS 1, Appendix A (Application Requirements):

Provides further guidance on entity-specific disclosures, ensuring consistency and comparability while allowing companies to disclose material matters not addressed by ESRS​.

ESRS 2, Disclosure Requirements (SBM-3, IRO-1, GOV-1 to GOV-5):

Outlines theminimum disclosure requirementsthat apply when companies make entity-specific disclosures related to governance, strategy, impacts, risks, and opportunity management​.

Key Provisions from ESRS:Thus, if a sustainability matter is deemedmaterialand is not sufficiently addressed by ESRS,entity-specific disclosures are mandatory.

Official References:

Commission Delegated Regulation (EU) 2023/2772, ESRS 1, Paragraphs 11 and 30​.

ESRS Implementation Q&A Platform – Compilation of Explanations January – November 2024​.

ESRS 2 IRO-1 requires organizations to disclose their process for identifyingimpacts, risks, and opportunitiesand assess theirmateriality. This includes detailing whether and howaffected stakeholderswere consulted during the process. Sincerisks and opportunitiestypically stem fromimpacts, the process ofimpact materiality assessmentserves as a natural starting point before evaluating theirfinancial materiality.

Identification of Impacts, Risks, and Opportunities (IROs):

Organizations must disclose their methodology for identifying materialimpacts, risks, and opportunities.

These include bothactual and potential impactson people and the environment, considering short-, medium-, and long-term horizons​.

Consultation with Affected Stakeholders:

ESRS 2 IRO-1 requires disclosure of whether and how theconsultation with affected stakeholdersinfluenced the identification of material sustainability matters​.

Stakeholder engagement is crucial in determining the scope and severity of sustainability impacts.

Role of Impact Materiality:

Impact materiality assessmentprecedes the evaluation of risks and opportunities.

Since mostrisks and opportunitiesoriginate fromimpacts, impact materiality serves as thestarting pointfor assessing theirfinancial materiality​.

Financial Materiality Evaluation:

Financial materiality pertains to the extent that a sustainability matteraffects the undertaking’s financial position, performance, cash flows, or cost of capital.

It evaluates whether an impact or risk could reasonably be expected to have amaterial financial effecton the organization​.

"Impacts, risks, and opportunities"correctly defines the scope of ESRS 2 IRO-1.

"Affected stakeholders"are explicitly referenced as a crucial element in the disclosure process.

"Risks and opportunities"emerge from sustainability impacts, making impact materiality the logical starting point.

"Financial materiality"is the final step, determining the financial significance of sustainability risks and opportunities.

Why is B the Correct Answer?Thus, the correct sequence isB: impacts, risks, and opportunities; affected stakeholders; risks and opportunities; financial materiality.

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

Commission Delegated Regulation (EU) 2023/2772, Annex I: ESRS 2 IRO-1 materiality assessment requirements​.

EFRAG Compilation of Explanations (January - November 2024): Explanation of ESRS 2 IRO-1 and its link to impact materiality​.

TheCorporate Sustainability Reporting Directive (CSRD)replaced theNon-Financial Reporting Directive (NFRD)to address itslimitationsin scope and reporting requirements. Below are the explanations for each option:

A. False– The NFRDdid notrequire all companies in the EU to include a non-financial statement. Instead, itapplied only to large public-interest entitieswith 500 or more employees.

B. True– The NFRD applied tolarge public-interest entities, includinglisted companies, banks, and insurance firms with more than 500 employees​.

C. False– The NFRDdid not mandate external assurancefor sustainability information. TheCSRD introduced mandatory assuranceat the EU level​.

D. False– The CSRDdid not replace the NFRD; rather, itexpanded and strengthened reporting requirements. TheNFRD was replaced by the CSRD, but not the other way around​.

E. True– TheCSRD was introduced to improve the scope and depth of sustainability reportingcompared to the NFRD. Itexpanded the number of entities required to report, standardized disclosures via ESRS, and introduced third-party assurance requirements​.

Key Differences Between CSRD and NFRDFeature

NFRD (Old Directive)

CSRD (New Directive)

Scope

Large public-interest entities (500+ employees)

All large companies + listed SMEs

Assurance

Not required

Mandatory external assurance

Disclosure Requirements

Limited sustainability disclosures

Comprehensive ESRS-based reporting

Reporting Standards

No standardized framework

ESRS-based mandatory framework

Application Date

In force since 2018

Applies from 2024 onwards

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

ESRS Compilation Explanations January - November 2024​.

Official References:

Nature is indeed recognized as a "silent stakeholder" in the European Sustainability Reporting Standards (ESRS). This term implies that, although nature cannot actively voice its concerns, it remains a critical component of sustainability reporting due to its fundamental role in sustaining life and economic activity. ESRS emphasizes that organizations must consider their impacts on nature, ecosystems, and biodiversity as part of their sustainability disclosures.

This recognition aligns with the concept ofdouble materialityembedded in the ESRS framework, which considers both the financial impact on an organization and the organization's impact on environmental and social matters. The ESRS explicitly integratesbiodiversity and ecosystems (ESRS E4)as a key topic, reflecting the need to account for the effects of business activities on nature, even if nature itself cannot actively advocate for protection.

Thesilent stakeholderconcept reinforces theduty of carethat organizations hold in assessing and mitigating their impacts on biodiversity, land use, pollution, and natural resources. This aligns with theUnited Nations Sustainable Development Goals (SDGs)and theEU Biodiversity Strategy for 2030, both of which emphasize the protection and restoration of natural ecosystems​.

Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023(ESRS E4 - Biodiversity and Ecosystems)​.

EFRAG Guidance on Stakeholder Engagement– Highlights nature as an affected stakeholder in sustainability matters​.

EU Biodiversity Strategy for 2030– Emphasizes that economic activities must integrate ecosystem preservation and restoration​.

Official References:This confirms that the statement istrueunder ESRS standards.

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).