IRO According to ESRS: Impacts, Risks, and Opportunities

DATE

17.08.2026

AUTHOR

Paulin Streit

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IRO stands for Impacts, Risks, and Opportunities. In European sustainability reporting, the term refers to the results of the double materiality analysis: the specific issues that a company has identified as material and is required to report on in accordance with the ESRS.

Scope: Impact, Risk, and Opportunity

In common parlance, these three components are grouped together as “IROs” and then treated as a single category. They differ in their point of view—and thus in the materiality perspective from which they are derived.

CriterionImpactRiskOpportunityPerspectiveFrom the company to the environment and peopleFrom the sustainability issue to the companyFrom the sustainability issue to the companyKey QuestionWhat are the effects of our actions?What threatens earnings, financial position, or access to capital?What will generate future revenue or cost advantages?Materiality PerspectiveImpact-Based MaterialityFinancial MaterialityFinancial MaterialityTime FrameActually occurred or potentialPotentialPotentialCommon MisclassificationsIs narrowed down to negative impacts; positive impacts remain unaccounted forIs equated with an entry in the risk registerRemains empty because no process generates it

ESRS risks differ from those in company-wide risk management not in terms of subject matter, but in terms of how they are derived: They arise from a sustainability issue and are identified through materiality analysis, not through risk inventory. In practice, the two lists overlap considerably—but they rarely coincide exactly.

Classification: Where IROs Are Regulated in the ESRS

The disclosure requirements regarding IROs are set forth in ESRS 2 “General Disclosures,” as established in Delegated Regulation (EU) 2023/2772 of July 31, 2023. Three disclosure requirements are interrelated: IRO-1 requires a description of the process for identifying and assessing material impacts, risks, and opportunities. IRO-2 requires disclosure of which ESRS disclosure requirements are covered by this process. SBM-3 requires a description of the material IROs and their interaction with strategy and the business model.

On July 3, 2026, the European Commission adopted the revised ESRS as a delegated act. According to the Commission, the number of mandatory data points will decrease by more than 60 percent, and the total number of data points by more than 70 percent. The revised version applies to fiscal years beginning on or after January 1, 2027; voluntary application for the 2026 fiscal year is permitted once it enters into force. As of August 2026, the legal act was still under review by the European Parliament and the Council. Until it enters into force, ESRS Set 1 remains the binding text.

Relevance for Businesses

The most common mistake in materiality projects is to leave the IRO list at the topic level: “climate change,” “our own workforce,” “corporate policy.” A topic is not an IRO. An IRO is a specific issue with a direction of impact, a location in the value chain, and a time horizon—such as water withdrawal at a production site in an area with high water stress. If the list remains at the topic level, IRO-2 cannot be answered because disclosure requirements cannot be clearly assigned to the topics. The assignment is then carried out retroactively during the reporting process—under time pressure and with the same stakeholders who thought the analysis was already complete.

The second recurring issue concerns opportunities. Impacts and risks are usually identified thoroughly, but the opportunities column remains empty because no process generates them: Risk management does not provide any, and the strategy department is not at the table. An empty “opportunities” column is not a procedural error, but rather visible evidence that the analysis has not been integrated into corporate planning. Five Glaciers Consulting conducts the dual materiality analysis in accordance with ESRS and embeds the IRO assessment into existing planning and risk processes rather than treating it as a separate process.

As for whether companies should tackle the IRO analysis now or wait for the revised ESRS, our recommendation is: start now. Reducing the number of data points narrows the scope of reporting, not the analysis—the company continues to determine which matters are material. One argument against this is that the revision also affects the materiality analysis process; according to several audit firms, some of the supporting calculations will need to be completed later. Companies that become subject to reporting requirements for the first time in fiscal year 2027 will not have time to complete both steps sequentially.

Frequently Asked Questions About IROs

What does IRO mean in sustainability reporting?

IRO stands for Impacts, Risks, and Opportunities. This refers to the issues that a company identifies as material in its double materiality analysis. Impacts describe the effects the company has on the environment and people. Risks and opportunities describe the financial implications of a sustainability issue for the company. Together, they determine which disclosure requirements the ESRS must address.

What is the difference between an impact and a risk?

The perspective. An impact originates from the company and affects the environment or people; it falls under impact-related materiality and may have already occurred or be potential. A risk originates from a sustainability issue and affects the company financially; it falls under financial materiality and is always forward-looking. Both may relate to the same set of circumstances but must still be identified separately.

Where are IROs addressed in the ESRS?

In ESRS 2 “General Disclosures” of Delegated Regulation (EU) 2023/2772 of July 31, 2023, IRO-1 requires a description of the process for identifying and assessing material impacts, risks, and opportunities. IRO-2 requires a statement specifying which disclosure requirements of the ESRS are covered by this process. SBM-3 requires a presentation of the material IROs in relation to the company’s strategy and business model.

Do the revised ESRS change the IRO disclosure requirements?

The European Commission adopted the revised ESRS as a delegated act on July 3, 2026. According to the Commission, the number of mandatory data points will decrease by more than 60 percent, and the total number by more than 70 percent. The revised version applies to fiscal years beginning on or after January 1, 2027, and may be applied on a voluntary basis as early as 2026. As of August 2026, the European Parliament and the Council were still reviewing the proposal; until it enters into force, ESRS Set 1 remains in effect.