Impact, Risk and Opportunity Management
IRO-1 – Description of the process to identify and assess material impacts, risks and opportunities
Our process and methodology for identifying material impacts, risks and opportunities (IROs) is based on the requirements of ESRS 1, section 3 and the application requirement of ESRS 1 AR 16. The provided list of sustainability matters from ESRS 1 AR16, alongside our existing material topics, formed the basis for developing a comprehensive long list of potentially material sustainability matters. This list also formed the basis for the IRO identification process. To determine if a sustainability matter is material or immaterial, the analysis was carried out from both an impact materiality perspective and a financial materiality perspective (double materiality). A sustainability matter is deemed material according to the double materiality concept if it is material from either or both perspectives. Other criteria have not been applied.
Impact materiality
Our impact materiality analysis followed the ESRS recommended process (please refer to ESRS 1, section 3.4). We identified, assessed and evaluated the impacts of all sustainability matters at the sub-topic level and, where applicable, sub-sub-topic level. To evaluate each impact, we first identified whether the impact was actual or potential, positive or negative, short, medium or long term, and at which value chain level the impact occurred. Based on this initial assessment, the materiality of actual negative impacts was evaluated based on the severity of the impact, while the materiality of potential negative impacts was evaluated based on the severity and likelihood of the impact. Severity was assessed using the following three parameters: scale, scope and irremediability. In the case of a potential negative human rights impact, the severity of the impact took precedence over its likelihood. For actual positive impacts, the materiality was based on the scale and scope of the impact, whereas for potential positive impacts, the materiality was based on the scale, scope and likelihood. Finally, we considered all aspects explained above and applied a scoring from 1, being marginal impact, to 5, being a significant impact on the respective matter.
Financial materiality
For financial materiality, we also followed the ESRS recommended process for assessing and evaluating the financial materiality of each identified risk and opportunity. We evaluated whether a sustainability matter causes or could cause a material risk or opportunity for adidas based on a combination of the likelihood of occurrence and the potential magnitude of the short-, medium- or long-term financial effects. This included material risks or opportunities affecting our net income and/or cash flows and/or our reputation, the health and safety of our employees, or legal and judicial consequences. We aligned the financial materiality methodology with our enterprise risk management (ERM) methodology to ensure consistency between our sustainability reporting and our risk management report.
Finally, we considered all aspects explained in this paragraph and applied a scoring from 1, being marginal, to 5, being significant from a financial materiality perspective. The materiality threshold for both impact and financial materiality was set at three, meaning every topic that has a score equal to three or higher is deemed material.
Process of our double materiality assessment
After creating a long list of sustainability matters mainly based on ESRS 1, AR16 as well as on some entity specific topics as a result of our prior materiality analyses and previous non-financial reporting, we identified generally relevant topics to potentially be reported on together with responsible internal content owners and expert teams. With them, we then proceeded to identify, assess, and prioritize potential and actual positive and negative impacts on people and the environment, as well as risks and opportunities that have or may have financial effects on our company.
Part of the process involved the mapping of affected stakeholders or users of information to identify and assess sustainability matters, integrating their perspectives and views. Although there was no direct involvement of external stakeholders, adidas teams acted as representatives of external stakeholder views and interests to ensure they were considered in the topic assessment. For example, affected communities and value chain workers were represented by the Social and Environmental Affairs team, the investor perspective by the Investor Relations team, the employee perspective by the Human Resources team, and the consumer perspective by the Brand team. Additionally, the Enterprise Risk Management team was involved in all discussions to ensure completeness and alignment in evaluating and assessing methodologies.
Through a series of workshops over a period of several months with internal stakeholders, including responsible experts and senior management, we identified, assessed and validated impacts, risks and opportunities. This process included the consideration of the connections of our impacts and dependencies with risks and opportunities that could arise from impacts and dependencies between sustainability matters. Further information on topical dependencies can be found in the respective topical standards as well as in the Risk and Opportunity Report. Generally, the success of our business model depends on our products, which are made of natural resources such as cotton, leather and rubber, as well as other materials such as recycled polyester. The availability and cost of these resources are critical to ensuring the supply of our products to consumers when they want it, where they want it and at a competitive price level. The manufacturing process for our products is very energy intensive and still requires a high level of manual work provided by the workers in our upstream value chain. Similarly, the success of our business activities depends on the creativity of our own employees, impactful collaborations with designers and celebrities, and our marketing and sponsoring activities, to ensure that we offer relevant products to our consumers. For the double materiality analysis, we considered all of these dependencies on natural, human and social resources to evaluate the IROs.
Relevant internal experts and content owners actively contributed to the process of the materiality assessment in the workshops, ensuring a thorough evaluation of the IROs related to our business and our value chain. Senior management and their expert teams are responsible for monitoring and managing our impacts, risks and opportunities from sustainability matters:
- Environmental: Material environmental impacts occur mainly in the upstream value chain. We have established teams that work in close collaboration with our suppliers and manufacturers to manage material impacts, e.g., GHG emissions, water, biodiversity, waste, and use of chemicals.
- Social: Material social impacts occur at every stage of the value chain and relate to the workers of manufacturing partners, our own employees, and our consumers. We have established teams and functions that manage highly material impacts, such as the Social and Environmental Affairs team in the legal function to manage human rights and working conditions in the supply chain, the HR function to manage impacts, risks and opportunities related to our own workforce, and the Marketing and Sales function to manage consumer interests.
- Governance: Material governance-related impacts, such as compliance and corporate culture topics are managed by the legal function, i.e., the compliance team together with HR.
The senior management of these teams, as well as experts in specific material topics, were deeply involved in the materiality assessment and provided final judgment on the results based on their subject-matter expertise. The involved senior managers also have a direct link to other internal decision-making processes up to the Executive Board level. In general, our sustainability-related risks are assessed at the same level of priority as all other business-related risks.
The Internal Controls team was involved in the entire materiality assessment process. Furthermore, for the collection and disclosure of material quantitative metrics, the team members worked together with content and data owners to ensure that data quality requirements for the metrics were met. For more information on internal controls for sustainability reporting, please see the general risk management process and the GOV-5 section.
After several workshops, the final assessment of materiality was conducted in collaboration with expert teams based on the evaluation criteria and threshold described above. Throughout our entire double materiality assessment, we considered all of our business activities, business relationships or geographies. Material entity-specific sustainability matters were not identified.
Value chain
An in-depth definition of the adidas value chain served as the foundation for our double materiality assessment and identification of sustainability matters and IROs. Given our business model, which relies on outsourced manufacturing and production processes with independent partners, we have segmented the value chain into three distinct parts:
- Upstream: all of our suppliers, e.g., product manufacturers
- Own operations: our own offices, distribution centers (DCs), and retail stores
- Downstream: our wholesale customers and end consumers
Data and assumptions
For the materiality assessment, adidas used existing internal environmental data (e.g., GHG emissions calculations, water usage data, biodiversity assessment, own workforce data, financial data) alongside regularly collected data on consumption, social compliance, suppliers and consumer insights. Additionally, we incorporated external data, focusing on the latest scientific studies, benchmarks, regulations, and other reporting standards such as GRI, SASB and the GHG Protocol.
Revision of materiality assessment
The materiality assessment process with the methodology described above was conducted for the first time in the reporting period. We plan to revise the assessment annually based on additional or new insights gathered in the respective year.
Topic-specific processes
In addition to our general approach and processes for identifying and assessing our IROs, we conducted the following topic-specific processes, including actions and steps of the double materiality assessment:
Standard |
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Description |
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E1 Climate change |
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Process to identify and assess the impacts on GHG emissions [//ESRS E1-20a IRO-1] |
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To identify and assess climate-related IROs, we use our GHG emissions as reported in the annual reports of the past years for Scope 1, 2, and 3. Our own developed tool enables us to quantify, monitor, and be transparent about our carbon footprint along our entire value chain. With regard to Scope 3 emissions, we have put considerable effort into gathering more primary data from our suppliers over the last few years. This has allowed us to gain more precise insights into carbon emissions, energy consumption, and the impact of our decarbonization initiatives. This tool is our primary source to understand and report on our impact related to GHG emissions. Based on the calculated GHG emissions, we come to the conclusion that our impact on climate change is distributed unequally across the value chain, with the most significant impact generated in the upstream supply chain, particularly in raw materials production and processing. Our current assessment covers future potential sources of GHG emissions due to the nature of our business model. |
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[//ESRS E1-20b IRO-1] |
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For our climate scenario/risk analysis, we used a climate modeling tool with the ability to model different climate scenarios; we used three climate scenarios covering a low, intermediate and high emissions scenario1.On this basis, we assessed our exposure in each scenario and the related vulnerability to selected climate hazards – wind, flood, avalanche, landslide, temperature, wildfire, snowfall, earthquake, and soil liquefaction – using more specific climate indicators, e.g., wind gust speed, blizzards, or average wind speed. The tool allowed us to create a digital twin of our business model (focusing on operational footprint, key own assets, main sourced materials, strategic suppliers, and supply chain information, including certain distribution routes) to provide focused information on our vulnerability. As a result, an in-depth view of our exposure to physical risks at the asset level formed the basis for identifying and assessing the material climate-related physical risks in the three different time frames assessed (2030, 2040, 2050). |
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[//E1-20c IRO-1] |
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To identify and assess climate-related transition risks and opportunities along our value chain, such as heightened exposure to respective regulation and changes in consumer preferences, etc., the climate modeling tool uses the Shared Socioeconomic Pathways (SSP) scenarios derived from the latest intergovernmental Panel on Climate Change (IPCC) AR6 report (2023) and the six scenarios explored in the third version of the Network for Greening the Financial System (NGFS) to compute bespoke transition indicators. The analyzed scenarios include a low-emission scenario (RCP2.6-SSP126) consistent with limiting global warming to 1.5°C. The assessment applied the same timeframes as for the physical risks (2030, 2040, 2050). The scenario analysis informed the resilience analysis (which considered our business model, operating model, and own assets) and its results can be found in ESRS E1 SBM-3 Climate Change2. |
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E2 Pollution |
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[//E2-11a+b IRO-1] |
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We screened our business activities to identify and assess actual and potential pollution-related IROs, focusing on our upstream supply chain but also considering own operations as well as downstream activities. For this, we used existing data collected through our manufacturing partners, such as use of substances of concern and quality of wastewater discharge3. |
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E3 Water and marine resources |
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[//E3-8a+b IRO-1] |
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Same process, screening, methodologies, assumptions, tools and consultations as outlined in ESRS E2 Pollution.4 |
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E4 Biodiversity and ecosystems |
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Description of processes to identify and assess material biodiversity and ecosystem-related IROs [//E4-17a IRO-1] |
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There have been three major analyses conducted in 2023/2024, where the results were used as the foundation to identify and assess the IROs related to biodiversity: |
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[//E4-17b IRO-1] |
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adidas assessed biodiversity dependencies in its upstream value chain (the only value chain level with material biodiversity IROs), focusing on leather, natural rubber, and timber. We reviewed ecosystem services, conducted literature reviews, and expert interviews. The assessment linked the apparel industry to ecosystem services, detailing how natural capital assets provide these services and are affected by environmental changes. Factsheets and summary tables highlighted key assets and drivers. Together with the Natural Capital Finance Alliance, we developed a framework for assessing the importance of natural capital assets and the impact of environmental changes. |
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[//E4-17c IRO-1] |
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Transition and physical risks and opportunities related to biodiversity and ecosystems have been identified and assessed, focusing on impacts and dependencies in the upstream value chain. The assessment criteria included regulatory compliance, cost implications, and environmental impacts6. Material risks identified include increased operational costs due to the need for traceability systems and sourcing-certified raw materials to comply with regulations like the EU Deforestation-free Regulation and the 2030 EU Biodiversity Plan. Non-compliance with these regulations could result in fines and restricted market access, particularly in the EU. Additionally, decreased biodiversity may compromise the availability and cost of nature-derived materials such as cotton, leather, and natural rubber, due to factors like reduced pollinators and ecosystem health issues. Water availability for production processes, such as dyeing and tanning, also poses significant risks. |
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[//E4-17d IRO-1] |
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adidas recognizes the importance of systemic risks related to biodiversity and ecosystems, but they have not been a primary focus of the current assessment process due to the lack of a widely recognized methodology and the significant cross-collaboration and time required. However, we are preparing to consider them in the future. |
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[//E4-17e IRO-1] |
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Consultations with affected communities on sustainability assessments of shared biological resources and ecosystems have not been conducted directly or formally yet. Affected communities were considered indirectly in our materiality process. Our internal experts maintain regular contact with external stakeholders, and their views are indirectly incorporated into our decision-making and strategy development. |
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[//E4-19b IRO-1] |
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Sites in or near biodiversity-sensitive areas are disclosed in the topical standard E4. As potential impact on biodiversity was deemed low, no mitigation measures are deemed necessary. |
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E5 Resource use and circular economy |
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Description of the processes to identify and assess material resource use and circular economy-related IROs [E5-11a, b IRO-1] |
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adidas has rigorously screened its assets and activities to identify actual and potential impacts, risks and opportunities across its operations and throughout the upstream and downstream value chain. The methodologies, assumptions, and tools used in the screening process of assets and activities are consistent with those applied for ESRS E4. The involvement of stakeholders regarding E5 was conducted in alignment with our general approach and double materiality assessment process7. |
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G1 Business conduct |
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Description of the processes to identify and assess material impacts, risks and opportunities [//G1-6 IRO-1] |
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The process for identifying material impacts, risks and opportunities related to business conduct matters followed the same process and criteria described in the ‘Process of our double materiality assessment’ section. However, as stated in the requirement, we specifically included the asked criteria for the ESRS G1 topic: |
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IRO-2 – Disclosure Requirements in ESRS covered by the undertaking’s Sustainability Statement
Materiality assessment and disclosure explanation
To evaluate the materiality of an IRO, and therefore of a sustainability matter, we employed a scoring system that assesses both impact and financial materiality, as explained in detail in the section of IRO-1. If the IRO, including its sustainability matter, is deemed immaterial, it means that the impact and the financial materiality were assessed with a score of two or below and therefore did not meet the threshold of three to be material.
Afterwards, we have determined the material information to be disclosed based on the impacts, risks and opportunities that we had assessed to be material and on the guidance of ESRS 1, section 3.2. In general, we followed the ESRS Disclosure and Application Requirements including the Minimum Disclosure Requirements (MDRs) for policies, actions and resources, and metrics and targets for those sustainability matters that had yielded a score of three or higher for either impact or financial materiality as a result of our DMA.
For detailed information on all existing policies, actions, and targets, please refer to the corresponding topical standard. For sustainability matters where no targets are currently established, we still track the effectiveness of our policies and/or actions through comprehensive processes that evaluate progress. If there is a defined ambition level or base period this is stated in the respective topical standards. Furthermore, in case any actual impact required the provision of remedy for those harmed by these impacts, a reference is given to relevant actions in the corresponding topical standard. In instances where we made use of the exemptions outlined in ESRS 1 Appendix C: List of phased-in Disclosure Requirements, these are explicitly stated. Nevertheless, our commitment is to address all reporting requirements diligently and to provide the necessary context and information.
ESRS-Disclosure requirement |
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Information |
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ESRS 2 General Disclosures |
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SBM-3 |
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ESRS 2 SBM-3 paragraph 48(e) (anticipated financial effects) |
E1 Climate Change |
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E1-9 |
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Anticipated financial effects from material physical and transition risks and potential climate-related opportunities |
E2 Pollution |
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E2-6 |
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Anticipated financial effects from material pollution-related risks and opportunities |
E3 Water & marine resources |
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E3-5 |
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Anticipated financial effects from material water and marine resources-related risks and opportunities |
E4 Biodiversity & ecosystems |
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E4-6 |
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Anticipated financial effects from material biodiversity and ecosystem-related risks and opportunities |
E5 Resource use & circular economy |
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E5-6 |
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Anticipated financial effects from material resource use and circular economy-related risks and opportunities |
S1 Own workforce |
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S1-7 |
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Characteristics of non-employee workers in the undertaking’s own workforce |
S1-11 |
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Social protection |
S1-12 |
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Percentage of employees with disabilities |
S1-13 |
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Training and skills development metrics |
S1-15 |
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Work-life balance |
Datapoints from other EU legislation in accordance with ESRS 2 Appendix B
The following table provides an overview of all datapoints derived from other EU legislation listed in ESRS 2 Appendix B of this standard.
Disclosure requirement | Data point | Legislation | Materiality/ Applicability/ Disclosure | |||||
21 (d) |
Board’s gender diversity |
SFDR/BRR |
Obligatory |
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21 (e) |
Percentage of board members who are independent |
BRR |
Obligatory |
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30 |
Statement on due diligence |
SFDR |
Obligatory |
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40 (d) (i) |
Involvement in activities related to fossil fuel activities |
SFDR/P3/BRR |
n.a. |
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40 (d) (ii) |
Involvement in activities related to chemical production |
SFDR/BRR |
n.a. |
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40 (d) (iii) |
Involvement in activities related to controversial weapons |
SFDR/BRR |
n.a. |
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40 (d) (iv) |
Involvement in activities related to cultivation and production of tobacco |
BRR |
n.a. |
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14 |
Transition plan to reach climate neutrality by 2050 |
EUCL |
Material |
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16 (g) |
Undertakings excluded from Paris-aligned benchmarks |
P3/BRR |
n.a. |
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34 |
GHG emission reduction targets |
SFDR/P3/BRR |
Material |
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38 |
Energy consumption from fossil sources disaggregated by sources (only high climate impact sectors) |
SFDR |
Material |
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37 |
Energy consumption and mix |
SFDR |
Material |
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40-43 |
Energy intensity associated with activities in high climate impact sectors |
SFDR |
Material |
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44 |
Gross Scopes 1, 2, 3, and total GHG emissions |
SFDR/P3/BRR |
Material |
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53-55 |
Gross GHG emissions intensity |
SFDR/P3/BRR |
Material |
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56 |
GHG removals and carbon credits |
EUCL |
Immaterial, but disclosed |
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ESRS E1-9 |
66 |
Exposure of the benchmark portfolio to climate-related physical risks |
BRR |
Phase-In; not disclosed |
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66 (a); 66 (c) |
Disaggregation of monetary amounts by acute and chronic physical risk; location of significant assets at material physical risk |
P3 |
Phase-In; not disclosed |
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67 (c) |
Breakdown of the carrying value of its real estate assets by energy-efficiency classes |
P3 |
Phase-In; not disclosed |
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69 |
Degree of exposure of the portfolio to climate-related opportunities |
BRR |
Phase-In; not disclosed |
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ESRS E2-4 |
28 |
Amount of each pollutant listed in annex II of the E-PRTR regulation emitted to air, water, and soil |
SFDR |
Immaterial |
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9 |
Water and marine resources |
SFDR |
Material |
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13 |
Dedicated policy |
SFDR |
Immaterial |
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14 |
Sustainable oceans and seas |
SFDR |
Immaterial |
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ESRS E3-4 |
28 (c) |
Total water recycled and reused |
SFDR |
Immaterial |
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29 |
Total water consumption in m3 per net revenue on own operations |
SFDR |
Immaterial |
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16 (a) (i) |
Activities negatively affecting biodiversity-sensitive areas |
SFDR |
Material |
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16 (b) |
Land degradation, desertification, or soil sealing |
SFDR |
Material |
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16 (c) |
Threatened species |
SFDR |
Material |
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24 (b) |
Sustainable land/agriculture practices or policies |
SFDR |
Material |
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24 (c) |
Sustainable oceans/seas practices or policies |
SFDR |
Material |
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24 (d) |
Policies to address deforestation |
SFDR |
Material |
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37 (d) |
Non-recycled waste |
SFDR |
Immaterial |
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39 |
Hazardous waste and radioactive waste |
SFDR |
Immaterial |
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14 (f) |
Risk of incidents of forced labor |
SFDR |
Immaterial |
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14 (g) |
Risk of incidents of child labor |
SFDR |
Immaterial |
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20 |
Human rights policy commitments |
SFDR |
Material |
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21 |
Due diligence policies on issues addressed by the fundamental International Labor Organisation Conventions 1 to 8 |
SFDR |
Material |
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22 |
Processes and measures for preventing trafficking in human beings |
SFDR |
Immaterial, but disclosed |
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23 |
Workplace accident prevention policy or management system |
SFDR |
Material |
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32 (c) |
Grievance/complaints-handling mechanisms |
SFDR |
Material |
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88 (b) and (c) |
Number of fatalities and number and rate of work-related accidents |
SFDR/BRR |
Material |
|||||
88 (e) |
Number of days lost to injuries, accidents, fatalities, or illness |
SFDR |
Material |
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97 (a) |
Unadjusted gender pay gap |
SFDR/BRR |
Material |
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97 (b) |
Excessive CEO pay ratio |
SFDR |
Material |
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103 (a) |
Incidents of discrimination |
SFDR |
Material |
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104 (a) |
Non-respect of UNGPs on Business & Human Rights, ILO principles, or OECD guidelines |
SFDR/BRR |
Immaterial |
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11 (b) |
Significant risk of child labor or forced labor in the value chain |
SFDR |
Material |
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17 |
Human rights policy commitments |
SFDR |
Material |
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18 |
Policies related to value chain workers |
SFDR |
Material |
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19 |
Non-respect of UNGPs on Business & Human Rights, ILO principles, or OECD guidelines |
SFDR/BRR |
Material |
|||||
19 |
Due diligence policies on issues addressed by the fundamental International Labor Organisation Conventions 1 to 8 |
BRR |
Material |
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36 |
Human rights issues and incidents connected to its upstream and downstream value chain |
SFDR |
Material |
|||||
16 |
Human rights policy commitments |
SFDR |
Material |
|||||
17 |
Non-respect of UNGPs on Business & Human Rights, ILO principles, or OECD guidelines |
SFDR/BRR |
Material |
|||||
36 |
Human rights issues and incidents |
SFDR |
Material |
|||||
16 |
Policies related to consumers and end-users |
SFDR |
Material |
|||||
17 |
Non-respect of UNGPs on Business and Human Rights and OECD guidelines |
SFDR/BRR |
Material |
|||||
35 |
Human rights issues and incidents |
SFDR |
Immaterial, but not disclosed |
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10 (b) |
United Nations Convention against Corruption |
SFDR |
Material |
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10 (d) |
Protection of whistleblowers |
SFDR |
Material |
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24 (a) |
Fines for violation of anti-corruption and anti-bribery laws |
SFDR/BRR |
Material |
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24 (b) |
Standards of anti-corruption and anti-bribery |
SFDR |
Material |