Materiality Matrix
Conducting a Materiality Scan
Companies and individuals frequently must cope with limited bandwidth in terms of attention and resources. Hence, it is important to select a limited number of high-impact sustainability efforts, instead of the all-too-common machine gun approach of spraying efforts large and thin. Effective implementation requires sniper precision in the definition of sustainability targets and dedicated efforts in execution. A materiality analysis provides guidance for focus, and the Materiality Map makes it possible to develop this in a quick-and-dirty fashion.
5 Steps for Integrating ESG Risks into Enterprise Risk Management
According to the World Economic Forum’s Global Risks Report in 2018, four of the top five risks were environmental or societal, including extreme weather events, water crises, natural disasters, and failure of climate change mitigation and adaptation. Growing interest from investors seeking to understand how organizations are identifying and responding to ESG-related risks is pressuring companies to fully integrate them in their Enterprise Risk Management (ERM). To support organizations in this challenge, COSO and the WBCSD released the final version of the “Guidance for Applying ERM to Environmental, Social and Governance related Risks”. The guidance presents a pragmatic 5-step process to identify and manage ESG risks today while maintaining resilience to adapt and respond to the megatrends of tomorrow.
Mature Materiality Management for Long-Term Shareholder Value
Over the last few years, the link between financial interest and companies’ effective management of ESG issues and risks has rapidly become more and more evident. We see an increasing number of cases where corporate loans are issued by financers such as ING, BBVA, and DBS Bank whereby interest rates are linked to sustainability performance as indicated by third-party ratings such as Sustainalytics or inclusion in the Dow Jones Sustainability World Index. These examples make the business case for an effective management of the right ESG issues extremely straightforward.
Checking Your ESG Blind Spots under the ‘Duty of Care’
We can no longer deny it: no matter the industry, each company faces a wide range of environmental, social and governance (ESG) risks found both within the business operations and throughout the value chain that need to be identified, monitored and managed. Although the benefits of good ESG risk management seem obvious, there are still companies claiming that some of the most important ESG risks such as human rights or climate change do not concern them. What European lawmakers have shown in 2018 through the EU Non-Financial Reporting Directive and the French “Duty of Care” law is that ESG risks affect all companies, albeit to a varying degree. In all cases, it is necessary for them to broaden the scope of ESG risks to avoid potential blind spots, and to be transparent towards stakeholders on the risks that are most prevalent.
Dow Jones Sustainability Index Readiness Assessment
The summer months are an ideal time to reflect upon a busy start of the year and start planning ahead for 2019. When in full reporting mode, you may run out of time and come across issues in your Dow Jones Sustainability Index (DJSI) process that you are not able to deal with at that very moment. For those eager to plan ahead and looking to maximally benefit from your participation, we've developed a comprehensive Readiness Assessment for (future) participants of the DJSI.
Less is More – the Materiality Conundrum
It sounds contradictory: Less is More. However, it is highly relevant for the sustainability focus of corporations. Companies often slip into the trap of focusing on too many ESG issues that are not material to their business. Solid research has shown that focusing performance on ESG issues that are truly material has a positive effect on total shareholder returns. So companies should concentrate on enhancing their impact in fields that matter the most. By committing to a select number of ESG issues, companies can unleash the full potential of their materiality matrices.
It's Time to Get Serious about Materiality
Last year, research among WBCSD member companies on sustainability and risk disclosures revealed that only 29% of material topics as published in the sustainability report were also included in the company’s legal disclosure of risks. Amazingly enough, for 35% of member companies this disclosure dropped to zero(!) demonstrating a feeble link between sustainability reporting and Enterprise Risk Management. With the launch of a public consultation on fiduciary duties and sustainability by the European Commission in November 2017, the increase of the interest in this topic is likely to further expand.
Lean Materiality Matrix 'Re-Fresh' Using Big Data
The materiality matrix has become a familiar sight in corporate reporting, representing a selection of topics that generate impact on the company and that are relevant to its stakeholders. Traditionally, full materiality assessments are conducted involving internal and external stakeholders in an elaborate process. But, today’s turbulent business environment requires a more frequent and agile approach, monitoring sustainability risks and opportunities around the clock. Finch & Beak’s Re-Fresh Materiality Assessment guarantees an annual update of your materiality matrix within 4 weeks by using big data from Bloomberg and CDP, among others.
Balancing Richness and Reach for More Focused Reporting
Spurred by regulation and industry standards, more companies than ever are reporting on core ESG topics by publishing integrated or separate corporate sustainability reports. Simultaneously, 26 percent of global assets under management are managed under an ESG strategy. While investors are becoming stronger advocates for ESG disclosure, companies are struggling to find the balance between reporting too little or too much. Pro-active lean reporting combined with responding to relevant external ESG rating requests can help to resolve this dilemma.
