The process of a materiality assessment

Identifying and evaluating key issues and information, in view of all relevant internal (e.g., business models, strategy priorities, goals) as well as external (e.g. stakeholders, society, environment) factors.

Validation of relevance of the selected topics and information. The successful performance of a materiality assessment should be confirmed during the non-financial report in consultation with stakeholders or by means of a review by independent, external third parties.

With the creation of a scoring logic, the prioritization of those information takes place, that directly influence the company and its environment in the context of all key parameters depending on the company-specific situation.

Integration of the selected topics and information into the non-financial reporting. In addition, the main topics are to be integrated into the sustainability strategy.

3 Current legal framework

A materiality matrix graphically illustrates the ESG issues that are most critical to the company and their stakeholders and serves as a guidance for identification and prioritization. In the following example, the two dimensions “Relevance from the stakeholder perspective” vs. “Environmental, social and economic impact” are used to assess the materiality of a topic. It may be deduced that a topic can also be material based on only one of the dimensions.

Example of a materiality matrix

Transparency (management/supervisory board compensation, audits, contracting, lobbying)

Resource consumption (e.g. water, energy, raw materials)

Climate protection/emissions

Social commitment

Compliance competencies in management

Composition of the management/ supervisory board

Ecological, social and economic impacts

Data security and privacy

Biodiversity

Customer/supplier satisfaction

Countermeasures to corruption

Resource management (recycling, limited resources e.g. floor space)

Employee health/safety/ diversity/equal treatment

Environmental

Social

Governance medium moderate very high

Relevance from the perspective of stakeholders

Source: Wiener Börse

Content

Die nIn accordance with NaDiVeG § 243b. (2) of the AustrianStock Corporation Act (AktG), non-financial reporting has to include information, that is necessary for the understanding of the development of the business, the business performance, the position of the company and the effects of its activities and which relate to environmental, social and employee issues, respect for human rights and the fight against corruption and bribery. An analysis explains the non-financial performance indicators by reference to the amounts and disclosures reported in the financial statements6. If a company is missing material data or information for non-financial reporting, a detailed description must be provided of why this information is not available and which topics, business units or business activities are covered in the report.

It is recommended that recognized international standards are taken into account when selecting sustainability indicators and structuring the content of non-financial reporting. Based on these standards, sector-specific content, among other things, represents a valuable source of information in addition to the existing minimum publication requirements and helps to focus the content on the key indicators and targets. This prioritization makes it possible to highlight the most important topics and indicators for the company, or the possible risks associated with them, and gives investors a compact overview of the situation.

Furthermore, sustainability reporting with a presentation of non-financial indicators should serve as evidence of progress and the achievement of the defined corporate goals in the course of the ongoing further development of sustainability policies. Taking into account the changing regulatory landscape, the requirements for the content and structure of sustainability reporting are also subject to ongoing change and may require an adjustment of the methodology and the presentation of non-financial indicators.

The non-financial information of both the parent company and the subsidiaries listed in the consolidated annual report must be taken into account in full. If this is not possible due to a lack of data or an inconsistent reporting structure, companies should clearly define which parts of the company are covered by the reporting.

The following contents have been highlighted by the European Commission in its guidelines for reporting on non-financial information6:

■ Business model: In describing the business model, companies may provide appropriate information on the following: the business environment; the organization and structure; the markets in which they operate; their objectives and strategies; the main trends and factors that could influence their future development.

■ Policies and due diligence processes: The descriptions of the due diligence processes for the most important sustainability risks make it possible to monitor, manage and, at best, reduce these risks.

■ Outcome: A company may disclose and explain the following: actual CO2 emissions, CO2 intensity; use of hazardous chemicals or biocidal agents; impacts and dependencies in the area of natural capital; comparison with targets; developments over time; mitigating effect of implemented policies; plans to reduce CO2 emissions.

■ Principal risks and their management: Information on the significant risks associated with the company‘s business activities, its business relationships, its products or its services, and how the company manages these risks.

■ Key performance indicators: These should be consistent with the key performance indicators that the company usually uses as part of its internal management and risk assessment processes. This increases the relevance and comparability of the information and ensures greater transparency.

■ Thematic aspects: Environmental concerns; Social and labour concerns; Respect for human rights; Combating corruption and bribery.

The effects of environmental and social risks pose major challenges to companies, influence companies in their strategic decisions and thus affect their business development. Being aware of these risks and countering them adequately is an essential success factor for companies.

The correct handling of these risks can be essential for the success of long-term corporate strategies and should be carried out in the overall corporate context. For example, implementing sustainability risks in the overall risk management processes helps companies to develop long-term policies for dealing with potentially negative environmental and social impacts on the core business and along the value chain.

Reputational risk and its reduction are further cornerstones of risk assessment in sustainability reporting. Since all companies along the supply or value chain strive to reduce this risk, there are not only mutual dependencies between companies and other stakeholders with regard to the successful implementation of sustainability strategies, but they also promote transparency along the value chains and help to build trust. In this way, common goals are achieved. Last but not least, responsible, sustainable and transparent business practices can reduce refinancing and investment costs and strengthen company valuations. The risk aspect therefore plays an essential role in sustainability reporting and should be reflected in it.

Ultimately, the scope, weighting and level of detail of reporting will depend on the specific characteristics of a company, its business model, industry and previous sustainability performance.

3.4. Format

In Austria, pursuant to NaDiVeG § 243b. Para. 1, companies have to include a non-financial statement in the management report unless they prepare a separate nonfinancial report, that has to be prepared and signed by the legal representatives, submitted to the members of the supervisory board, examined by the latter and disclosed together with the management report.

Non-financial reporting by means of a stand-alone sustainability report is still valid for the reporting year 2023 (financial year 2022) but will no longer be a probable reporting format on the basis of the CSRD (see section 4, item 1: CSRD).

To date, a stand-alone report has offered companies a high degree of flexibility in the design of the methodology, the presentation of data and the timing of publication. However, the option to publish in a separate report reduces the comparability and availability of information and can create the impression that sustainability information is of less relevance and has a negative impact on the reliability of the data. The European Commission therefore required, as part of the CSRD, that companies include their sustainability information in a dedicated section of the management report. References to corporate financial matters and impacts of sustainability issues on the business operations provide more clarity and represent a significant quality feature. Cross-references to the annual report may reduce the risk of considering sustainability issues without taking into account the financials key figures or the impact on the core business and thus providing an incomplete picture of the company.

Another reporting format is the integrated report (see also section 3, item 3.1.3. International Integrated Reporting Framework), which combines financial and non-financial reporting in a single document. Due to the comprehensive expansion of the information to include the effects and influences of non-financial aspects on the business activities, it offers investors a holistic view of the company. An integrated report enables companies to link to a high degree the corporate strategy as well as the business model with the sustainability goals or policies and to present their reciprocity in full.

The non-financial report should generally be prepared in a format that enables the company to present the information contained in it to as many stakeholders as possible in a comprehensible manner without sacrificing detail and structural depth. Investors, analysts and other financial market participants, who often obtain this information in automatically processable form from third-party providers, serve as an example.

Additional or up-to-date information and documents may also be published at any time on the company website as well as other suitable channels, yet it is recommended to refer to such information and documents in the nonfinancial reporting.

3.5. Quality

To ensure the quality of sustainability reporting, the sustainability policies and key performance indicators should be placed in the appropriate context. This includes historical industry peers or current trends and how these relate to the company‘s sustainability targets. The prioritization of information that presents the core economic activities of a company together with their impact on its environment enables effective communication with investors and helps them to correctly classify the targets set and achieved by the company. Nevertheless, the entire range of economic activities (also as part of quality assurance) should be included in the non-financial reporting in order to prevent possible information gaps. Wherever possible, indicators should be presented quantitatively to ensure the best possible comparability with the company‘s own historical performance data as well as other companies in the sector in order to present the correct context.

The European Commission has highlighted the following quality characteristics in its guidelines for reporting non-financial information7:

■ Disclosure of material information: A company shall disclose the information necessary for an understanding of the effects of its activities.

■ Fair, balanced and understandable: The report should give equal weight to positive and negative aspects. The information should be evaluated without bias and presented in a balanced manner.

■ Comprehensive but concise: The information should help stakeholders understand the company‘s business performance, results of operations, position and the impact of its activities.

■ Strategic and future-looking: The statement should provide information about a company‘s business model, its strategy and its implementation.

■ Stakeholder orientated: Companies should address the information needs of all relevant stakeholders.

■ Consistent and coherent: Information in the sustainability report should be consistent with the other contents of the management report

3.6. Enforcement8

Companies operating on the regulated capital market in Austria are subject to the Financial Reporting Enforcement Act (Rechnungslegungs-Kontrollgesetz). The act provides for the Financial Market Authority, as the accounting control authority, and an auditing body organized under private law as operational enforcement bodies. The aim is to ensure the reliability of companies‘ capital market information. The focal points of the audit are published annually for the information of the companies concerned and in preparation for the upcoming audits by the Financial Market Authority.

For the 2021 financial year, the focus of the audit was set on non-financial reporting and the identified climate-related risks, opportunities and impacts. The disclosures pursuant to Article 8 of the Taxonomy Regulation are also audited in case they have been published in the management report.

In addition, the Financial Market Authority has published a guideline on dealing with sustainability risks. The guideline serves as a support to the supervised companies in taking sustainability risks into account in their business activities and prepares them in particular for regulatory developments, such as the application of the Disclosure Regulation9.

To date, there is no uniform, mandatory reporting standard for sustainability reporting, but work is already underway at EU level on the development that is to be applied in the course of the new CSRD (see Section 4, Item 4.2: ESRS). This section therefore describes the voluntary, international frameworks and standards that have become recognized in sustainability reporting. The majority of issuers listed on the prime market of the Vienna Stock Exchange follow the GRI, TCFD, the SDGs, the UN Global Compact. If a company uses one or more frameworks, it should disclose which framework or standards it has used.

The Vienna Stock Exchange does not recommend any particular of the many reporting standards available for reporting, but rather provides a list of standards for issuers to consider.

4.1. International frameworks

4.1.1

Global Reporting Initiative10

The Global Reporting Initiative (GRI) is an international, non-profit foundation of UNEP and CERES that promotes sustainability reporting by organizations worldwide. To this end, in 2016 the GRI published the so-called “GRI Sustainability Reporting Guidelines”. They are among the most widely used sustainability reporting guidelines in the world. The GRI Guidelines provide reporting principles, specific requirements (Disclosure Requirements) and implementation guidance for the preparation of sustainability reports. They enable companies, regardless of size, industry, and location, to report on the impact of their activities on the economy, the environment and people in a way that is transparent and structured for all stakeholders.

The application of the GRI standards is also recommended by Austrian legislation. In the explanatory notes to the text of the NaDiVeG, the Austrian legislator stated that the new statutory information requirements would in any case be adequately met if the comprehensive GRI standards were applied.

The standards are divided into universal and topic-specific standards and have a modular structure. The universal standard contains generally applicable standards that apply to every company and is used to determine the topics that are material to report on. In addition, the GRI has also developed sector-specific guidelines that apply to specific sectors (e.g., oil and gas, coal, aquaculture, agri-culture, and fisheries) and which have a significant impact on people and the environment. Further, the GRI Topic Standard is dedicated to specific topics (e.g., waste, health, safety, tax) and includes information that should be provided on the topic.

GRI is working with the European Financial Reporting Advisory Group (EFRAG) on the development of the new ESRS standard (see section 4, item 4.2: ESRS). The GRI standard is to be adopted in the EU ESRS standard.

GRI arbeitet mit der European Financial Reporting Advisory Group (EFRAG) an der Entwicklung des neuen ESRS Standards (siehe Abschnitt 4, Punkt 4.2: ESRS) zusammen. Der GRI-Standard soll in diesem verpflichtenden EU-Standard übernommen werden.

4.1.2 TCFD11

The Task Force on Climate-related Financial Disclosures (TCFD) was established in 2015 by the Financial Stability Board. The goal is to identify the information needs of investors, lenders and insurers to assess and evaluate climate-related risks and opportunities. While other frameworks help to present the impact of businesses on climate change, TCFD focuses on the material impacts of climate change for businesses and the resulting financial risks. It provides a forward-looking view of the business.

In 2017, the TCFD published the “Recommendations for Climate-related Financial Disclosures” to assist companies in disclosing financially material information regarding climate-related risks and opportunities. All TCFD recommendations can be found in a TCFD checklist12.

The TCFD requirements cover the four areas of governance, strategy, risk management, and metrics & targets. Reporting according to TCFD aims to appropriately disclose risks and opportunities as consequences of climate change and thus strengthen financial market stability.

In 2021, the TCFD updated the Guidelines for Implementing the TCFD Recommendations to reflect the evolution of disclosure practices and to better assist companies with implementation.

The materiality perspective of the NFDR Directive on the disclosure of non-financial information captures both financial materiality and environmental and social materiality, while the TCFD is limited to a financial materiality perspective.

4.1.3

International Integrated Reporting Framework13

The International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB) are both part of the IFRS Foundation, a non-profit organization with representatives from regulatory, accounting and securities authorities, investors, companies and NGOs that have developed a standard for integrated reporting - the <IR> framework (Integrated Reporting Framework). The IASB sets the IFRS accounting standards and the ISSB sets the IFRS standards for the disclosure of sustainability information.

The <IR> framework provides principle-based guidelines for the structure and content of reporting. In this context, an integrated annual report comprises eight content elements (Organizational overview and external environment, Governance, Business model, Risks and opportunities, Strategy and resource allocation, Performance, Outlook and Basis of preparation) that are interrelated and not mutually exclusive.

The report should provide a holistic view of the company by disclosing the business model in terms of strategies, governance, risks, opportunities, and outlook, with the aim of linking financial information and non-financial aspects in the reporting. An integrated report considers the interrelationships and dependencies between financial, environmental and social factors affecting a company and shows how the company creates financial and non-financial value in the short, medium and long term.

4.1.4

International Sustainability Standards Board (ISSB)14

The International Sustainability Standards Board (ISSB) is the successor to the Sustainability Accounting Standards Board (SASB), a U.S.-based non-profit organization that develops standards for sustainability accounting and disclosure of financially material sustainability information. The standards are available for 77 industries and identify those subsets of environmental, social and governance issues that are most material to financial performance in each industry.

The ISSB published drafts of the first two IFRS Sustainability Disclosure Standards on 31 March 2022. They provide for disclosures about sustainability-related risks and opportunities of an entity that are necessary for investors to evaluate the entity. The ISSB will build on the SASB standards and embed SASB‘s industry-based approach to developing standards into the ISSB‘s development process. The ISSB actively encourages preparers and investors to use the SASB standards.

4.2. International initiatives

4.2.1 Sustainable Development Goals (SDGs)15

The Sustainable Development Goals (SDGs), adopted by all 193 member states at the 2015 United Nations (UN) climate conference in Paris, are a set of 17 goals (and 169 underlying targets) that aim to improve the social, economic, and environmental problems of the world by 2030.

The SDGs offer companies uniform indicators and shared priorities for communicating their sustainability performance. According to the SDGs, the starting point for sustainability reporting is an assessment of the positive and negative as well as the current and potential impacts along the value chain. Setting priorities and targets contributes to the development of a climate strategy. By aligning the company‘s goals with the SDGs, management underlines its commitment to sustainable development. The most important prerequisites for achieving the goals are the integration of sustainability into the core business and governance processes as well as the embedding of sustainability goals in all areas of the company. The sustainability report neds to illustrate how companies contribute to the respective SDGs.

4.2.2

UN Global Compact (UNGC)16

The UN Global Compact (UNGC) is a strategic initiative for companies that want to align their business activities and strategies with sustainable development and social responsibility. The principles cover the core areas of human rights, labour standards, environmental protection and anticorruption and include a catalogue of values consisting of ten principles. A prerequisite for participation in the UNGC is a written declaration by the management in which the company commits itself to consistently comply with these principles and to responsible business practices.

The 10 principles of the UN Global Compact are:

■ Human Rights

□ Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and

□ Principle 2: make sure that they are not complicit in human rights abuses.

■ Labor standards

□ Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

□ Principle 4: the elimination of all forms of forced and compulsory labour;

□ Principle 5: the effective abolition of child labour; and

□ Principle 6: the elimination of discrimination in respect of employment and occupation.

□ Environmental protection

□ Principle 7: Businesses should support a precautionary approach to environmental challenges;

□ Principle 8: undertake initiatives to promote greater environmental responsibility; and

□ Principle 9: encourage the development and diffusion of environmentally friendly technologies.

■ Fighting corruption

□ Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

Participants of the Global Compact are required to communicate their progress on the ongoing implementation of the ten principles on a regular basis (“Communication On Progress - COP”). The COP has to state which measures have been adopted in the four thematic areas and at what stage their implementation is. A description and an evaluation of the measures are required; the information on the implementation progress has to be published online.

16 UN Global Compact

4.2.3 CDP

The CDP (known as the Carbon Disclosure Project until 2012) is a non-profit organization founded in London in 2000 that operates an environmental data disclosure system, making publicly available the world‘s largest database of climate and emissions primary data from companies, cities, regions and countries. Its goal is to examine the impact of climate change on the world‘s major publicly traded companies.

The data is collected and evaluated annually using a comprehensive questionnaire. CDP offers three reporting categories, including climate change, water security and forestry. The questions aim to provide information on activities and contributions to reducing global warming and negative environmental impacts, as well as strategies to mitigate a company‘s associated risks.

In this way, CDP helps companies to identify the risks and opportunities of their environmental impacts and to disclose them transparently to stakeholders. The publication of data and rankings is intended to motivate companies to take action. The data is used by investors, decision-makers, scientists and the media.

The CDP is an internationally recognized standard for corporate environmental reporting and is fully consistent with the recommendations of the TCFD.