IROs (impacts, risks and opportunities) are the sustainability-related effects a company assesses in its CSRD double materiality assessment: impacts are the effects the company has or could have on people and the environment, actual or potential, negative or positive, while risks and opportunities are the financial effects that sustainability matters have or could have on the company. Under the European Sustainability Reporting Standards (ESRS), IROs are the unit of the double materiality assessment, and the material ones decide what a company has to report.
In short: IRO means impact, risk and opportunity. Impacts cover the inside-out view (impact materiality), risks and opportunities the outside-in view (financial materiality). Impacts are assessed on severity (scale, scope, irremediable character) and likelihood; risks and opportunities on financial magnitude and likelihood over short, medium and long time horizons. Under the revised ESRS (2026) you may conclude top-down where a topic's outcome is evident (ESRS 1 §27), you don't need to assess every possible IRO (§32), potential impacts may only be reduced by implemented mitigation (§43), and positive impacts are not netted against negative ones (§44).
This guide explains what IROs mean, how to classify and score them, what the revised ESRS changed, and shows sample IROs you can adapt. If you are new to the overall process, start with our step-by-step guide to the CSRD double materiality assessment.
What are IROs? Definition and meaning
IROs connect the two perspectives of double materiality. A sustainability matter is material if it is material from the impact perspective, the financial perspective, or both.
| Impact | Risk | Opportunity | |
|---|---|---|---|
| Perspective | Inside-out (impact materiality) | Outside-in (financial materiality) | Outside-in (financial materiality) |
| Question | How does the company affect people and the environment? | How could a sustainability matter hurt the company financially? | How could a sustainability matter benefit the company financially? |
| Direction | Negative or positive | Negative financial effect | Positive financial effect |
| Status | Actual or potential | Potential (with a likelihood) | Potential (with a likelihood) |
| Example | GHG emissions from purchased steel | Rising carbon costs on steel inputs | Demand for energy-efficient products |
Impacts
Impacts describe what the company does to people and the environment, in its own operations and across its upstream and downstream value chain. They can be:
- Negative or positive, for example pollution from a plant or a product that cuts customers' energy use.
- Actual or potential: an actual impact is happening now, a potential impact could happen in the future.
Risks and opportunities
Risks and opportunities describe what sustainability matters do to the company: effects on cash flows, financial position, cost of capital or access to finance. Typical sources are regulation (carbon pricing), physical effects (extreme weather), market shifts (customer demand) and dependencies on natural or human resources.
Impacts and risks are often linked. A company with high emissions (impact) may face rising carbon costs (risk). They are still two separate IROs, each assessed on its own criteria. That is why a single "climate change: high" rating is not enough.
How to classify an IRO
Before scoring, describe each IRO as a concrete statement ("serious injuries in the foundry", not "health and safety") and classify it:
| Characteristic | Options | Note |
|---|---|---|
| Type | Negative impact, positive impact, risk, opportunity | Determines which scoring criteria apply |
| Status | Actual or potential | Relevant for impacts; potential impacts add likelihood |
| Value chain | Upstream, own operations, downstream | The ESRS require the whole value chain, not just own operations |
| Time horizon | Short, medium, long term | Short = reporting period of the financial statements, medium = up to five years, long = more than five years |
| ESRS topic | E1 to E5, S1 to S4, G1 or entity-specific | The topic list in ESRS 1 Appendix A is a non-binding input, not a mandatory checklist |
The time horizon matters most for risks and opportunities. A rise in sea level may be a minor risk in the short term and a major one in the long term, so state which horizon each score refers to.
IROs under the revised ESRS (2026): what changed
The European Commission adopted the revised ESRS on 3 July 2026 as Delegated Regulation (EU) 2026/1563. They are mandatory for financial years starting on or after 1 January 2027; for financial year 2026 companies can choose between the 2023 ESRS, the revised ESRS or the 2023 ESRS with reliefs. IROs remain the unit of analysis, but the rules around them changed:
| Rule (revised ESRS) | What it means for your IROs |
|---|---|
| Top-down (ESRS 1 §27) | You may conclude that a topic or sub-topic is material or not material without IRO-level scoring, based on your strategy, business model, sectors, geographies and value chain. |
| Bottom-up (§28) | Where the outcome is not evident, a specific IRO assessment is still required. You can combine both approaches topic by topic. |
| No exhaustive search (§32) | You are not required to assess every possible IRO, only the areas where material IROs are likely to arise, using reasonable and supportable information available without undue cost or effort. Quantitative scoring is not necessarily required. |
| Value chain data (§33) | The value chain part can be assessed with average regional data, sector data or generally available information, without direct input from value chain actors. |
| Gross vs. net (§43) | Actual negative impacts: assessed as they actually manifested; mitigation from previous periods counts, remediation in the reporting period does not. Potential negative impacts: only reduced by prevention and mitigation actions that are already implemented and can reasonably be assumed to be effective. Planned measures do not count. |
| Positive impacts (§44) | Assessed on their own, never netted against negative impacts. Remediating your own negative impacts and simply complying with the law are not positive impacts. |
| Topic list (Appendix A) | Non-binding guidance and "one of the inputs"; no sub-sub-topics; E3 is now "Water". |
| Reporting (ESRS 2) | IRO-1 describes the process; the material IROs are now described in IRO-2; SBM-3 focuses on their interaction with strategy and business model and on financial effects. |
In practice this ends the "long list of 300 IROs" approach. What you need instead is a defensible rationale: where you looked, where you concluded top-down and why. Our article on the double materiality assessment under the revised ESRS covers all changes in detail.
How to assess IROs
Each IRO is scored against the criteria for its type. Define the scales and thresholds before you score, and have them approved. Auditors want to see that thresholds were not tuned after the results were known.
| IRO type | Criteria |
|---|---|
| Actual negative impact | Severity = scale, scope, irremediable character |
| Potential negative impact | Severity + likelihood (for human rights impacts, severity takes precedence over likelihood, ESRS 1 §40) |
| Actual positive impact | Scale, scope |
| Potential positive impact | Scale, scope, likelihood |
| Risk / opportunity | Financial magnitude × likelihood, per time horizon |
Impact materiality: severity and likelihood
- Scale: how grave the negative impact is, or how beneficial a positive one.
- Scope: how widespread it is (number of people affected, size of the area).
- Irremediable character: how hard it is to reverse the harm (negative impacts only).
- Likelihood: how probable a potential impact is.
A common method is a 1 to 5 scale per criterion. Severity is the average of scale, scope and irremediable character; for potential impacts, severity is combined with likelihood, except where a potential human rights impact is severe enough that severity alone decides.
Financial materiality: magnitude × likelihood
- Magnitude: the potential effect on cash flows, financial position, cost of capital or access to finance. Calibrate the scale to your enterprise risk management (for example 1 = less than €0.5m, 5 = more than €15m EBIT effect).
- Likelihood: the probability that the risk or opportunity occurs within the relevant time horizon.
The ESRS prescribe no thresholds. You set your own, for example 3.0 on a 1 to 5 scale, and justify them. A topic is material if at least one of its IROs passes the impact threshold or the financial threshold. Our help article on adjusting thresholds in a materiality assessment shows how to configure and document them, and our double materiality assessment example walks through a fully scored set of IROs for a mid-sized manufacturer.
Where do the inputs come from? Stakeholder interviews and surveys are the usual source for scale, scope and likelihood. Our materiality assessment questionnaire gives you ready-to-use questions, and our guide to the materiality matrix under the revised ESRS shows how to present the scored results (a matrix is useful, but not required).
Score your IROs in Materiality Master
Describe, classify and score every impact, risk and opportunity against your own thresholds, document top-down conclusions and keep an audit trail of every change. Aligned with the revised ESRS.
IRO examples
The examples below are illustrative IROs for an industrial manufacturer. Note how one topic produces several IROs of different types.
Sample IROs for ESRS E1 "Climate change"
| IRO | Type | Status | Value chain | Time horizon |
|---|---|---|---|---|
| GHG emissions from purchased steel and castings and from energy use in the foundry | Negative impact | Actual | Upstream, own operations | Short term |
| Energy-efficient products reduce customers' electricity consumption | Positive impact | Actual | Downstream | Short term |
| Extreme weather disrupts key suppliers, raising material costs and delaying deliveries | Risk | Potential | Upstream | Medium term |
| Growing demand for high-efficiency products driven by energy regulation | Opportunity | Potential | Downstream | Medium term |
A note on the positive impact: cutting your own emissions, for example by switching to renewable electricity, reduces a negative impact. Under ESRS 1 §44 that is not a positive impact in its own right; it shows up in a lower score for the negative impact (if already implemented) and in your climate disclosures.
Sample IROs for ESRS S1 "Own workforce" and G1 "Business conduct"
| IRO | Topic | Type | Status | Value chain | Time horizon |
|---|---|---|---|---|---|
| Serious injuries in foundry and machining | S1 | Negative impact | Potential | Own operations | Short term |
| Shortage of skilled machinists and engineers limits growth | S1 | Risk | Potential | Own operations | Medium term |
| Bribery in public tenders via distributors | G1 | Negative impact | Potential | Downstream | Short term |
| Fines and exclusion from tenders after a corruption case | G1 | Risk | Potential | Downstream | Medium term |
For the injury risk, only safety measures already in place and effective (for example a certified safety management system) may reduce the score. A training programme planned for next year may not (§43).
Common mistakes with IROs
- Rating topics instead of IROs. "Climate change: high" tells an auditor nothing. Score specific IROs and aggregate afterwards, or document a top-down conclusion.
- Counting compliance or remediation as positive impacts. Neither qualifies under §44.
- Netting out impacts with planned measures. Only implemented, effective mitigation counts for potential impacts (§43).
- Netting positive against negative impacts. Each is assessed on its own.
- Chasing completeness. You don't need every conceivable IRO (§32), but you do need to document where you looked and why you stopped.
How Materiality Master helps with IROs
Materiality Master guides you through the full IRO workflow: it pre-selects the criteria that apply to each IRO type, calculates scores against your thresholds, lets you record top-down conclusions with evidence, and shows the results in a materiality matrix. Once your material topics are set, the ESRS Datapoints Mapping Tool translates them into the revised ESRS datapoints you need to report.
Compare plans and start with a free trial on our pricing page.
