Implementing the CSRD is a complex and extensive project. The regulatory environment related to corporate sustainability is evolving rapidly and we acknowledge that these are only the first steps we are taking on a long journey. By starting the preparation in 2023, before disclosures are due, we wanted to ensure that we would be ready when the legislation comes into effect and at the same time drive positive changes and build overall business resilience. The following text describes how impacts and risks were identified through a double materiality assessment (DMA).

The concept of a double materiality assessment (DMA) is the cornerstone of the CSRD framework, and we started our preparatory work by conducting such an assessment in accordance with requirements outlined in the ESRS. Double materiality, as defined by the CSRD, comprises impact materiality and financial materiality. Impact materiality refers to a company’s impact on the environment and society. Financial materiality refers to the risks and opportunities that a company faces in relation to the environment and society. A sustainability matter is considered ‘material’ or relevant for a company if it fulfils the requirements for either impact materiality or financial materiality, or both.

At this stage the CSRD has not yet been put forth in the Icelandic parliament. Nevertheless, to ensure compliance with adequate preparation, we started working with external consultants in 2023 on the preparation for reporting in 2025 for the financial year 2024.

As a leading hub carrier in Iceland, we take our role and responsibility in the society seriously. We strive to have an ongoing dialogue and cooperation with a wide range of stakeholders through our business operations and customer engagement, communicating with employees, shareholders, and authorities on sustainability related issues. In addition to other relevant content the DMA is based on Icelandair’s previous materiality assessment where these stakeholder groups were approached in an extensive assessment. This time selected groups of stakeholders were engaged in the process, through interviews and workshops, to understand how they may be impacted by our operations. The principles of the CSRD, including the DMA, and the progress of the project were presented to both the Executive Committee of Icelandair and the Board of Directors during the year. In 2024, we will further refine our DMA process and methodology and initiate a new dialogue with key stakeholders, for verification of the DMA outcome and materiality topics.

To identify what sustainability information to collect and report for the financial year 2024, and in line with the requirements, a DMA was conducted with a four-step approach as followed:

1. Preparation and scoping

As a common point of reference for the assessment it started with mapping of Icelandair’s business model and value chain. The mapping also served to determine the assessment boundaries, i.e. what is captured in the assessment and thresholds, followed by mapping affected stakeholders and determining their involvement.

2. Mapping impacts, risks, and opportunities

As a second step, comprehensive workshops were held to validate previously identified impacts, risks, and opportunities (IRO’s) and to identify additional or new IRO’s that could potentially be material for Icelandair. The process covered all topics, sub-topics and sub-sub-topics included in the overview in ESRS 1. Based on the results from these workshops, and to get further information and understanding, consultation with stakeholders and experts was conducted.

3. Assessing materiality

The third step was firstly to assess materiality of impacts by evaluating severity and likelihood and secondly assess materiality of risks and opportunities by evaluating potential size and likelihood. The outcome was aligned with the materiality thresholds resulting in an impact, risk or opportunity that is material for Icelandair.

4. Validation and reporting

Validation of the assessment was the final step and the output presented in a DMA results report, including a materiality matrix showing the consolidated results of which sustainability topics were assessed as material. As a part of the preparation phase for future CSRD reporting this will be a continuous process and if needed an update of the assessment will be done. To facilitate the assurance process by a third-party, a documentation of the methodology and results are in place.

The results of the impact materiality cover actual and potential, positive and negative impacts related to Icelandair’s own operations and value chain. Overall, eight out of ten topics were assessed as material for the Company and around half of the sub-topics and sub-sub- topics laid out in ESRS 1 were assessed as material. The results of the financial materiality cover risks and opportunities for Icelandair’s business in the short-, medium- and long-term time horizons. Overall, the financial effects relate to identified impacts, dependencies on natural and human resources and physical risks of climate change, with most of the material financial risks being related to climate change.

As recommended by the European Financial Reporting Advisory Group, in EFRAG’s implementation guide for materiality assessments, visualizing double materiality results can be helpful and herby the results are presented in a graph where impact materiality is on one axis and financial materiality on the other axis.

This representation is a high-level overview where topics are placed on the matrix based on the highest impacts, risks, and opportunities within each topic, i.e. not based on averages. Only one sub-topic needs to be material for the standard to become material. The results of the DMA were reviewed and validated by Icelandair’s Executive Committee.

Based on the DMA results, as well as the list of disclosures for the mandatory standards, ESRS 1 and 2, a gap assessment will be conducted in 2024 to identify the documentation and data needed to comply with the disclosure requirements. It includes reviewing currently available data, assessing its quality and reliability, starting to collect new types of data, and developing policies and implementing new processes to prepare Icelandair for disclosure in accordance with CSRD when it comes into effect.