What Is Step A?
Step A is the mandatory reconnaissance phase of the materiality assessment. Before a company even attempts to identify a single risk or opportunity, it must build an exhaustive, brutally honest map of its entire operational and value chain context.
EFRAG IG1 explicitly states that the company must generate a comprehensive overview of its activities, its business relationships, and its affected stakeholders. If you fail to map your context accurately in Step A, every subsequent step of the materiality assessment will be legally corrupted by blind spots.
Step A demands deep analysis across three distinct pillars:
- Activities and Business Relationships
- Geographical and Regulatory Context
- Understanding of Affected Stakeholders
Step A is exactly like a military general mapping the battlefield before deploying troops. You do not just stare at your own headquarters. You must map every supply line, identify every chokepoint, understand the local weather conditions, and identify exactly which civilian populations are caught in the crossfire. Without this total context, your strategic deployment (your materiality assessment) is guaranteed to fail.
Pillar 1: Activities and Business Relationships
To map this pillar, the company must violently interrogate its own business plan. You must map:
- Every product you sell and every physical service you provide.
- The exact geographic location of every factory, retail store, and data center.
- The massive, sprawling web of your upstream suppliers and downstream distributors.
Value Chain Accountability: The ESRS legally destroys the concept of "outsourced responsibility." Impacts generated by a third-party subcontractor dragging minerals out of the earth for your product are completely connected to your business. You must map these relationships.
Pillar 2: Geographical and Regulatory Context
A company operates inside a physical and legal reality. Step A requires analyzing:
- The brutal regulatory landscape governing your specific sectors.
- Hostile media reports and NGO campaigns attacking your industry.
- The specific environmental fragility of your operating geographies (e.g., operating water-intensive data centers in a desert).
Pillar 3: Identifying Affected Stakeholders
You cannot assess impacts on people without knowing who those people actually are. Step A requires the company to actively identify which stakeholder groups (factory workers, local communities, indigenous groups) are actively or potentially affected by the massive value chain map generated in Pillar 1.
The Ultimate Cheat Sheet: ESRS 1 AR16
To ensure companies do not conveniently "forget" to assess difficult topics, the ESRS provides a massive, mandatory checklist: ESRS 1 Application Requirement 16 (AR16).
The AR16 is an exhaustive list of sustainability matters broken down into brutal granularity:
- Topic: e.g., Own Workforce.
- Subtopic: e.g., Working Conditions.
- Sub-subtopic: e.g., Health and Safety.
EFRAG highly dictates that companies use AR16 as the foundational checklist to guarantee completeness. However, AR16 is merely the floor, not the ceiling.
The AR16 list is a mandated starting point, absolutely not a final pass. The company is legally forced to hunt for entity-specific matters that AR16 might have missed. If a unique sector risk exists that AR16 does not explicitly name, you absolutely must add it to the assessment.
Weaponizing Existing Internal Data
Step A does not require you to start from zero. EFRAG explicitly instructs companies to aggressively mine their existing internal intelligence networks.
Your corporate Enterprise Risk Management (ERM) system, existing ESG frameworks (like GRI), and ongoing human rights due diligence programs already possess massive amounts of raw data. You extract this existing data and cross-reference it aggressively against the AR16 checklist.
The Final Output of Step A
Step A does not produce a list of material topics.
Step A produces a massive, exhaustive, heavily documented contextual map. It produces the exact boundaries of the universe the company is about to interrogate. This map dictates exactly where the company will aggressively hunt for specific impacts, risks, and opportunities in Step B.
Key Takeaways
- 1Step A is the mandatory reconnaissance phase - you must map your full context before identifying any specific risks
- 2The three pillars of Step A are: activities and business relationships, geographical and regulatory context, and affected stakeholders
- 3ESRS 1 AR16 provides a mandatory checklist of sustainability matters, but it is the floor, not the ceiling - entity-specific matters must also be added
- 4Leverage existing internal data from ERM systems, GRI frameworks, and due diligence programs to accelerate Step A
- 5Step A does not produce material topics - it produces the contextual map that defines where you will hunt for IROs in Step B