Impacts, risks and opportunities (IRO) management and double materiality assessment

In 2023, the Sustainability and ESG Relations Department, which is part of the Corporate Communications and Responsibility Division, conducted the Group’s first double materiality assessment in accordance with the preliminary requirements established by the EU CSRD and the ESRS. This process began with the identification of a preliminary list of potential material topics and their impacts, risks and opportunities (IROs).

A stakeholder consultation was then carried out to collect input on how the impact of our activities is perceived and assessed across different sustainability topics. This assessment gathered information from more than 16,600 stakeholders from ten different groups¹ in Poland, Portugal and Colombia, to assess the impact materiality along our value chain, considering both severity (scale, scope and irremediability of the impact) and likelihood of occurrence. In addition to the input from these stakeholders, the impact matrix also considered internal and external expertise. Material financial issues were identified using the Group’s risk management system². The assessment considered risks and opportunities along the value chain, based on their magnitude (potential financial impact on sales and costs) and likelihood of occurrence.

At the end of the process, the exercise was validated by senior management and members of the Managing Committee, approved by the Committee on Corporate Governance and Corporate Responsibility, and subsequently communicated to the Companies’ Sustainability Committees³. Based on the findings, the material topics and subtopics were identified and the mandatory sustainability disclosure requirements for the 2023 Annual Report were outlined.

In 2024, with the support of an independent external specialised consultant, we reviewed the assessment in accordance with the final version of the ESRS⁴ and the final versions of the implementation guidance published in May 2024 by EFRAG (European Financial Reporting Advisory Group). Because it was considered unnecessary, stakeholders were not consulted again in 2024, but the findings of the 2023 financial year were taken into account. The IROs were again reviewed and complemented with documentary research and benchmarking analysis based on publicly available information from 16 companies in the food retail sector (including sustainability reports, annual reports and corporate websites) regarding their double materiality processes in accordance with the ESRS.

After identifying the material topical standards, materiality was assessed at the level of disclosure requirements and datapoints. The process for assessing materiality and the thresholds applied are described in sections “Governance and strategy”, and “Impacts, risks and opportunities management and double materiality assessment”.

The methodology applied in the Group’s double materiality review process prioritised the assessment of impacts, evaluating severity based on scale, scope, irremediability and likelihood, using a numerical scoring scale ranging from 1 to 5. The prioritisation of negative impacts is based on the average score of scale, scope, irremediability and likelihood of occurrence, applying differentiated rules for actual and potential impacts. Positive impacts are assessed based on the average score of scale, scope and likelihood, for both actual and potential impacts.

From a financial perspective, the assessment is aligned with the Group’s Risk Matrix described in point 54 “Description of the Risk Identification, Assessment, Monitoring, Control and Management Process”, which uses a numerical scale from 1 to 5 and evaluates criteria such as likelihood and impact, to prioritise risks and opportunities.

Given the integration of sustainability into the Group’s business strategy, no distinct hierarchy exists between sustainability risks and other identified risks (e.g., operational, financial and commercial). Given their interconnected nature, risks are assessed in an integrated manner.

Explicit thresholds for impact materiality and financial materiality were also defined and applied consistently in the final materiality determination. The methodology also incorporates weightings between stakeholder input, the Group’s internal contributions and those of the specialised external and independent consultants.

The identification of IROs considered our different business areas (food distribution, specialised retail and agrifood) and the three most relevant countries (Poland, Portugal and Colombia), enabling the capture of operational and contextual specificities that influence the likelihood of negative impacts. Each impact was also assessed in relation to the relevant stages of the value chain (upstream, own operations and downstream), ensuring that more sensitive business relationships and activities, such as extensive supply chains or dependencies on critical raw materials, were considered in greater detail. The process also included benchmarking analysis, sectoral regulatory frameworks and risk trends in each market, reflecting external factors and regulatory pressures that may increase the likelihood or severity of impacts, thereby ensuring that areas, activities or contexts susceptible to generating negative impacts are identified and addressed proportionately to the associated level of risk.

A total of 145 IROs were identified in this review, broken down as follows:

The assessment of IROs considered different time horizons (short-, medium- and long-term) and the stage of the value chain where they may occur. Of the 145 IROs analysed, 21 were determined to be material. Regarding the ESG subtopics, 35 were identified, of which 10 were assessed as material for the Jerónimo Martins Group, in accordance with our internal thresholds, namely the ranges applied in our corporate risk management processes.

The identified impacts, risks and opportunities (IROs) cover environmental, social and business conduct dimensions, reflecting the broad range of topics analysed. Among the current negative impacts identified, of note are greenhouse gas emissions and the associated generation of plastic waste, mainly related to product packaging. As regards to potential negative impacts, risks related to economic barriers to accessing products and a potential loss of consumer trust in companies in the food companies are particularly noteworthy.

Current positive impacts include encouraging more sustainable behaviours within communities and the strengthening of responsible supply chain practices, reflected in quality assurance mechanisms and more favourable payment terms for suppliers. Among the potential positive impacts identified are the strengthening of communities and the mitigation of risks related to product safety, contributing to increased stakeholder trust.

Regarding opportunities, most notable are the potential to reduce food waste, improved employee engagement and satisfaction, enhanced training and skills development, and the promotion of innovation in products and services, including the development of alternatives that respond to new consumer preferences.

Among the risks identified are challenges related to talent management and development, gaps in training and skills development, risks arising from rapid technological change that may affect competitiveness, as well as issues related to product affordability and consumer price perception.

No material IROs were identified in relation to the environmental topics related to pollution, water and marine resources, and biodiversity and ecosystems. Regarding social topics, no material impacts, risks or opportunities were identified in relation to workers in the value chain.

The process for identifying, assessing and managing sustainability impacts and risks is integrated into the company’s overall risk management model and contributes to defining the Group’s overall risk profile. For detailed information on the interrelationship between sustainability risk assessment and management and the general risk management model, see “Identifying and assessing negative impacts”.

As a result of this exercise, the following material topics were identified:

Note: Material topics resulting from the application of the cut-off threshold.

Following the consolidated double materiality assessment, these are the ten most material topics identified in 2024:

• Product quality and safety standards

• Affordable products

• Sustainable and responsible supply chain practices

• Labour rights and working conditions – own workforce

• Food waste

• Product and service innovation

• Climate change

• Packaging redesign for a more sustainable use of resources

• Employee training and development

• Engagement and supporting local communities

The topics “Product safety and quality standards” and “Product affordability” were considered the most relevant both from an impact and financial materiality point of view (risks and opportunities).

The topics identified directly by the consulted stakeholders (impact materiality) and which are included in our double materiality matrix are:

• Sustainable and responsible supply chain practices

• Packaging redesign for a more sustainable use of resources

• Employee training and development

• Engagement and supporting local communities

The risk assessment identified the following topics as having the greatest potential to generate positive or negative financial impacts on the Group’s activities:

• Labour rights and working conditions – own workforce⁵

• Food waste

• Employee training and development

• Product and service innovation

We intend to repeat this assessment every three or four years. In the interim, and where required, adjustments will be made to ensure the assessment is kept current.

Relationship between the business model, strategy and value chain, and the IROs identified through the double materiality assessment

Business model and strategy

The Jerónimo Martins Group primarily operates in the food sector, promoting safe, healthy, and affordable food solutions and products through its Companies and Private Brands. Respect for all stakeholders and a commitment to sustainable development principles are integral to its growth and value creation strategy.

The Group’s strategy incorporates the material sustainability topics identified above. These topics guide short-, medium- and long-term policies and commitments, based on which programmes and initiatives are established to achieve the defined targets. The Group’s strategy, key challenges and the initiatives implemented to ensure that the identified IROs are appropriately addressed are described throughout this Sustainability Statement, and in the section dedicated to each identified material topic.

Each impact is described based on its specific relevance to the business, reflecting operational, social or environmental dependencies that influence how the Group creates and preserves value. This approach enables a consistent demonstration of how impacts arise from the structural characteristics of the business model (e.g., extensive supply chains, large-scale operations and daily interaction with millions of consumers) and how they relate to key strategic priorities, including product quality and safety, food accessibility, operational efficiency, responsible supply chain practices and people development.

Impacts and dependencies are also assessed to identify the risks and opportunities that may arise from them. Material impacts such as climate change, resource use, labour conditions, consumer trust, supply chains and relationships with communities are analysed together with critical dependencies, including energy, raw materials, suppliers and own workforce. This analysis allows us to assess when and how an impact may translate into operational, financial or reputational risks, and when it may generate opportunities for efficiency, innovation, enhanced competitiveness or social value creation. These practices enable the Group to make strategic and operational decisions that mitigate material risks while capturing opportunities for efficiency gains, innovation, reinforcement of circularity and the strengthening of relationships with employees, suppliers and communities, supporting resilience of the business model in the short-, medium- and long-term. Accordingly, impacts and dependencies directly inform risk management, the development of opportunities within the business model and the strategy.

Potential financial effects associated with these actions (e.g., the transition to renewable energy sources, potential carbon costs, raw material volatility and quality failures) are strategically mitigated through the management of efficiency opportunities and growth in new market segments, as well as through access to bank financing and potential financing instruments linked to environmental or social performance. As the disclosure of the financial effects of IROs is an ESRS requirement subject to phase-in provisions, we have made use of this option to support the progressive adaptation of our internal control systems, that will allow us to fully report these datapoints in future reporting cycles.

¹ Responses were collected from the representatives of nine groups: employees, consumers, suppliers and service providers, non-governmental organisations, private charities, analysts and investors, the media, sectoral associations, and insurance companies. For more details on the ways in which we relate to our stakeholders, visit the page “Our Stakeholders”.

² For more information, see “Internal Control and Risk Management”.

³ For more details on the 2023 financial year, please refer to the 2023 Annual Report.

⁴ Published on 22 December 2023 in the Official Journal of the European Union.

⁵ The 2023 topic “Compensation and benefits” was integrated into “Labour rights and working conditions – own workforce” to align nomenclature with the subtopics included in the ESRS.