CSRD guidance and double materiality assessment for IFU

IFU falls in scope of the CSRD and reached out to Ramboll to walk them through the overall process of aligning with the CSRD and, more specifically, to carry out a detailed and meaningful double materiality assessment (DMA). A strong relationship had already been established between IFU and Ramboll through prior collaboration, where Ramboll supported the establishment of an Article 9 fund in line with the Sustainable Finance Disclosure Regulation (SFDR).

IFU is an independent government-owned fund offering risk capital to companies in developing countries and emerging markets. Through equity and loan investments, it aims to contribute to the green transition, economic growth, and social development in the investment countries, while advancing the UN Sustainable Development Goals.

IFU has invested in 1,346 companies in more than 100 countries in Africa, Asia, Latin America, and parts of Europe. The active portfolio covering all funds contains 161 project companies and totals an expected investment of 14 billion EUR.

CSRD compliance lacks tailored guidelines for the financial sector, including development financial institutions. IFU faces the dual challenge of managing relationships with Danish state actors, limited partners, and investors, while reporting on a diverse portfolio of companies, spanning five sectors and 30 sub-sectors across multiple geographies. Their key investment areas such as green energy and infrastructure, sustainable food systems, healthcare, and financial services each present distinct impacts, risks, and opportunities, which a DMA must accurately reflect to provide meaningful insight.

Additionally, understanding risk and its application to a development financial institution was particularly challenging, given that risk is inherently embedded in IFU’s operating model. Developing a framework for assessing financial risk and opportunity that aligns with IFU’s structure was thus a central focus.

In light of the diverse portfolio and geographic spread, a tailored double materiality assessment using a sector-based approach was necessary to ensure a meaningful assessment.

The assessment was carried out in three main steps, each carefully tailored to the context of IFU, with an emphasis on producing meaningful results throughout the process.

• Preparation & Scoping: This phase had several important components, including 1) defining the assessment’s objective, 2) integrating IFU’s investments into the DMA, 3) considering relevant financial instruments (i.e., equities, loans, grants and guarantees), and 4) establishing assessment boundaries.
• Identifying material impacts: This stage focused on understanding material impacts from a stakeholder perspective, defining the appropriate assessment framework as well as assessing the likelihood and severity of impacts to determine their materiality:
• Identifying material financial risks and opportunities: This step involved understanding financial material risks and opportunities through a stakeholder lens, defining a suitable assessment framework, and assessing the likelihood and size of financial effects related to risks and opportunities to determine their materiality.

The double materiality assessment methodology and results were presented to both IFU’s internal and external stakeholders. Feedback from the consultation process further informs the assessment and is incorporated into the final results. Based on the results of the DMA, material ESRS topics and sub-topics were identified and linked to disclosure requirements and data points to determine their reporting necessity.

As a development financial institution operating in a broad range of sectors across the globe, IFU is considering material sustainability topics in its daily operations. This assessment enables IFU to consider material sustainability topics from two perspectives: how it affects people and the environment and how it may be affected by sustainability-related financial risks and opportunities. Furthermore, the overall assessment reinforces that IFU has strong risk mitigation frameworks and, thus, strengthens its strategic approach to impact.