Material risks are risks arising from environmental, social, or governance (ESG) issues that may negatively impact financial performance. These include physical climate risks (e.g., flooding), transition risks (e.g., carbon pricing), and social or governance-related exposures.
Under the ESRS, companies must assess whether sustainability-related risks are material by evaluating their likelihood and potential magnitude of financial effects. Material risks can arise from the company's dependencies on natural and social capital (e.g., water scarcity affecting operations), regulatory changes (e.g., new carbon taxes), or reputational damage from poor ESG performance. Companies are required to disclose material risks across short, medium, and long-term time horizons as part of their CSRD sustainability statements.
Learn how to identify and assess material sustainability risks under CSRD and explore our guide on ESRS reporting requirements for a comprehensive understanding of risk disclosures.
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