Most Recent GRI ESRS-Professional Exam Dumps

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 is financially material if it could reasonably be expected to trigger material financial effects on an undertaking. Financial materiality is not limited to issues under the direct control of the company; it includes dependencies on natural, human, and social resources that could create risks or opportunities.

Why the other options are incorrect:

Option A: The ESRS framework allows for both qualitative 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: The financial materiality assessment is conducted for the short-, medium-, and long-term, not just the short term.

Commission Delegated Regulation (EU) 2023/2772

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

EFRAG Guidance on Double Materiality and Risk Assessments

The Corporate Sustainability Reporting Directive (CSRD) replaced the Non-Financial Reporting Directive (NFRD) to address its limitations in scope and reporting requirements. Below are the explanations for each option:

A . False -- The NFRD did not require all companies in the EU to include a non-financial statement. Instead, it applied only to large public-interest entities with 500 or more employees.

B . True -- The NFRD applied to large public-interest entities, including listed companies, banks, and insurance firms with more than 500 employees.

C . False -- The NFRD did not mandate external assurance for sustainability information. The CSRD introduced mandatory assurance at the EU level.

D . False -- The CSRD did not replace the NFRD; rather, it expanded and strengthened reporting requirements. The NFRD was replaced by the CSRD, but not the other way around.

E . True -- The CSRD was introduced to improve the scope and depth of sustainability reporting compared to the NFRD. It expanded the number of entities required to report, standardized disclosures via ESRS, and introduced third-party assurance requirements.

Key Differences Between CSRD and NFRD

Feature

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

Official Reference:

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

ESRS Compilation Explanations January - November 2024.

2023/2772, various EFRAG guidance documents, and reports related to CSRD, ESRS, stakeholder engagement, double materiality, external assurance, and digital reporting Study guide Reference at the end of each question

Under the ESRS framework, effective internal controls for assurance purposes must meet key characteristics to ensure reliability, traceability, and auditability.

Correct Options Explained:

(A) Documentation & Implementation: Internal controls must be formally documented, implemented as per the designated schedule, and consistently applied.

(C) Testability by External Assurance Providers: Assurance providers must be able to verify the controls, test their effectiveness, and ensure compliance with CSRD assurance requirements.

Incorrect Options Explained:

(B) Same Staff Performing & Assuring the Control: A fundamental principle of internal control is the separation of duties to avoid conflicts of interest. The control must be performed by one team and assured independently.

(D) No Need for Documentation: Proper documentation is mandatory for internal controls to enable traceability, testing, and regulatory compliance.

ESRS Reference:

Commission Delegated Regulation (EU) 2023/2772, GOV-5: Risk management and internal controls over sustainability reporting, highlighting the necessity of internal control mechanisms.

EFRAG Assurance Guidelines: Stipulating that documented controls must be verifiable and tested for external assurance.

The EU Taxonomy and the ESRS digital taxonomy serve different purposes in sustainability reporting:

EU Taxonomy is a classification system that identifies environmentally sustainable economic activities and establishes criteria for determining their contribution to environmental objectives. It is primarily used to guide investment decisions and financial disclosures.

ESRS Digital Taxonomy is a structured digital framework that ensures sustainability disclosures are machine-readable, standardized, and comparable under the Corporate 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

Under EU Taxonomy Regulation (2020/852)

Under CSRD (Directive 2022/2464/EU)

EU Platform on Sustainable Finance Report: Simplifying the EU Taxonomy

Commission Delegated Regulation (EU) 2023/2772

The double materiality assessment involves 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).

The correct steps in conducting this assessment include:

(A) Comparing identified material topics with ESRS 1 AR 16 -- This ensures alignment with predefined sustainability matters in ESRS.

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

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

Why the other options are incorrect:

(B) False: Entity-specific disclosures must cover all 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 mandatory for 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