Breaking down the double materiality assessment: what are IROs? (Updated Mar 2026)

If your business is planning to report on the Corporate Sustainability Reporting Directive (CSRD), you've almost certainly come across the concept of a Double Materiality Assessment (DMA). One crucial component of this assessment is the identification and evaluation of Impacts, Risks, and Opportunities (IROs).

This guide explains what IROs are in the context of CSRD and how to approach them in your double materiality assessment.

What are IROs in the context of CSRD?

Under ESRS 1, companies are required to identify and assess their sustainability-related IROs as part of their double materiality assessment:

• Impacts: The actual or potential positive or negative effects your company has on people or the environment, through your own operations or value chain. Impacts relate to impact materiality.
• Risks: The sustainability-related financial risks that could negatively affect your company's financial performance, position, or cash flows. Risks relate to financial materiality.
• Opportunities: The sustainability-related opportunities that could positively affect your company's financial performance. Opportunities also relate to financial materiality.

Why IRO identification matters

IROs are the building blocks of your DMA. The process of identifying and assessing them determines which ESRS topics are material for your company — and therefore which disclosures you must make.

Under the amended ESRS following the Omnibus I Directive, the requirements around IRO identification have been clarified and simplified, but the core process remains. You need to be able to demonstrate that your assessment of material topics is grounded in a systematic review of your actual and potential impacts, risks, and opportunities.

How to identify and assess IROs

Step 1: Define the scope

Consider your own operations and your upstream and downstream value chain. ESRS requires companies to look beyond their direct operations to understand how their supply chain and the use of their products create impacts, risks, or opportunities.

Step 2: Identify IROs for each sustainability topic

Work through each ESRS topic (E1–E5, S1–S4, G1) and identify the specific impacts your operations have on that topic, the financial risks arising from that topic, and any financial opportunities it presents.

Step 3: Assess severity and likelihood

For each identified IRO, assess its significance:

• For impacts: evaluate scale, scope, and irremediability
• For risks and opportunities: evaluate the likelihood of occurrence and potential financial magnitude

Step 4: Apply materiality thresholds

Determine which IROs are material based on their assessed significance. A topic is material under CSRD if it is material on either the impact dimension or the financial dimension.

Step 5: Document and defend

The most important thing is documentation. Your auditor will want to understand not just your conclusions but your process and rationale. Every materiality decision should be traceable to evidence and stakeholder input.

Common challenges with IRO assessment

• Scope creep — trying to assess too many IROs without a structured process
• Insufficient value chain coverage, especially for Scope 3 impacts
• Lack of documentation to support materiality decisions
• Treating IRO identification as a compliance exercise rather than a strategic tool

How Coolset supports IRO assessment

Coolset's DMA workflow provides a structured framework for identifying and assessing IROs across all ESRS topics. It includes scoring guidance, documentation templates, and a direct connection from the DMA output to your ESRS reporting scope. Book a demo to learn more.