Sustainable Finance – It is here to stay. Here’s why.

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Introduction

Back then, it is known that investors focus mainly on financial returns, regardless the impact their investments have on society and the environment. Now, it is a different story. Environmental and social issues continue to be the main highlights of today’s news globally and there is a significant rise of interests made from stakeholders including the investors. 

Apart from that, in many case studies, sustainable funds are observed to be outperforming conventional funds, such as during the covid-19 pandemic period. So, this creates a win-win opportunities situation for investors to reap financial return and at the same time do good for the society and environment.

 

What is Sustainable Finance?

The short definition of sustainable finance is investment or financing that considers environmental, social and governance (ESG) factors into account on top of financial returns. Terms such as green financing and also social impact financing also constitute the sustainable finance spectrum; the former is related to finance activities that stimulate economic growth while simultaneously reduce environmental risks and impacts, and the latter is related to the positive impact created in regards to specifics group of the society.

 

Why is it a big deal?

The struggle to combat climate change impacts varies from ecosystem and biodiversity restoration as well as how we manage natural resources. But this is not enough. Sustainable finance can be the answer to get the win over climate change impacts. Globally, the economy requires up to USD800 billion each year to mitigate the climate crisis by 2030. This is a huge amount. Thus, private entities and public entities around the world have to collaborate on the sustainable finance agenda.

Financial institutions are the key players when it comes to sustainable finance through capital allocations towards sustainable projects and programmes. Financial institutions can provide critical financial support for companies towards sustainable investments and operations.

The role of financial institutions in sustainable finance has been on the rise. On top of that, there is a growing trend for companies to come up with business strategies and commitments that are linked to sustainability i.e.to create positive impact on the environment and society. This results in rising demand for investment through sustainable finance.

Though financial institutions have a vital role to play, sustainable finance initiatives also depend on the involvement of non-profit organisations (NGOs), regulators, investors and governments. Innovation for sustainable finance product offerings depend highly on the alliance of all these entities.

 

Companies are getting serious with sustainable finance

Sustainability in general, brings significant values for companies. Furthermore, there has been greater expectations from employees, to investors, clients, and regulators towards the integration of ESG factors into business model.

Employees demand for a more sustainable business working environment and operations, especially the younger workforce where sustainable values on top of attractive packages are core for them to stay with a company. On top of that, employees also want to affiliate working with companies that invest in projects and programmes through the funding from sustainable finance.

Investors and clients also want to move towards ‘greener’ portfolios where financial returns would also come with positive environmental impact. They want that ‘added’ value so they know they are making a difference in this world.

Regulators all around the world are becoming more and more aggressive in setting their expectations across all sectors to adopt sustainable business.

All of this means that, there is both opportunities and risks elements of sustainability integration for companies which indicates that sustainable finance is important for key and external stakeholders for a company.

That is why, sustainable finance is here to stay.

 

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation  

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The Main Challenges in Climate Reporting and How to Tackle Them

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Companies have been disclosing on how their operations impact the climate and this information is easily accessible in companies’ websites and public reports. But, what about the information regarding the impact of climate risks to companies? Recently, this topic is being discussed at a greater length and the demand for companies to disclose it has risen. This is due to the fact that the direct physical impacts of climate change risks are exposing companies’ operations to complex operational risks. On top of that, this demand is also driven by the indirect and transition climate change impacts, including introduction of new policies and regulatory requirements to shift towards a low carbon economy, as well as changes in customers demand on product and services that are more ‘climate friendly.

Reporting on the impact of climate risks to operations represents how the company is both managing the risks as well as creating business opportunities for the sustainability of the business.

In response, stakeholders are demanding for greater transparency on the climate impacts on companies’ financial performance, including future performance.

Adoption of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD) recommendations is also increasing, and we are seeing this across the world. The recommendations of TCFD have been driving companies to enhance the holisticness of climate disclosures. The TCFD sets out a framework that enables companies to disclose their climate risk profile and integrate it into mainstream filings. This information provides regulators and investors with a meaningful climate-related risk information to better assess how companies manage climate change impact and how they respond over short, medium and long term.

 

TCFD – Current Progress

The TCFD recommendations are widely accepted by organisations from various sectors, including investors, associations, as well as policymakers. All have expressed full support towards the adoption of the TCFD recommendations.

However, the implantation of the TCFD is deemed as the main challenge, from getting started to improvements the adoption. CDP and Marsh & McLennan Companies’ Global Risk Center in its research has reported that the implementation challenges faced by organisations include the following three key areas:

·         Securing leadership buy in for a wider approach to climate risks

·         Overcoming siloed risk-management processes

·         Limited experience with climate change scenario analyses.

 

Securing leadership buy in

The Board and Management need to properly define and evaluate the impact of climate risks to the balance sheet of the company. In order to do so, Board and Management should expand their horizons of their considerations towards climate related issues and trends. It is reported that more than 80% of companies’ Board provide oversight on climate issues. However, it also reported that only 10% of companies actually incentivise Boards to prioritise climate risks, and even lower percentage of Boards consider climate risks as a top 5 risks affecting the company within the next 5 years. This clearly contradicts with the -Global Risk Report by the World Economic Forum which ranks climate- and environment-related threats as the most likely and most damaging over the next decade. 

 

Risk management are working in silos

Conventional risks can be easily isolated and addressed with standard risk-management process, and this will not pose much issues to a lot of businesses. However, it is a totally different ball game when it comes to more complex risks embedded in interconnected systems, such as nature-related risks and climate risks including on risks pertaining the transition to a low-carbon economy.

Climate risks for example, are now considered one of the biggest risk topics being discussed. According to CDP, only 34% and 28% out of more than 1,500 companies, respectively, are linking physical risks and regulatory and transition risks associated with climate change beyond six years.

For investors, organisations and other stakeholders that are assessing the mid- or long-term view, limited and short-term climate change impact analyses will not be adequate in providing them with robust information on potential direct physical and transitional risks from climate change.

This is certainly a complex issue. On top of that, another research has found that the complexity also rises from the lack of stadardisation and clarity on risk definitions, as well as which function within the organisation that is accountable to manage them. Climate risk management should not fall under under the sole responsibility of one individual or a function which in many cases – the sustainability team. Responding to climate risks will require broad ownership, understanding and collaboration across the organisation on climate risks and opportunities and how they relate to financial impacts in the long run.

 

There’s not much experience and cases on climate change scenario analysis

Based on TCFD’s recommendation, companies should describe the potential impact of different climate scenarios, including a 2-degree Celsius scenario, on businesses, strategy and financial planning.

The fact is, companies encounter a lot of challenges and potential barriers in translating climate scenarios to integrated financial analysis. Various types of climate scenarios and widely varied outcomes result uncertainty to determine which climate scenarios are appropriate to use and to translate into meaningful financial impact analysis. Currently, the developed climate scenario models were established mainly for academic and economic use cases, but not financials. Existing scenarios require input and judgment from experts across the organisation but the other challenge is that for many cases, the process involves a lot of very educated guesswork and not everyone guesses in the same wavelength as others.

Companies are required to find ways to integrate the analysis into current strategy and scenario planning and risk assessment. Subsequently, companies are required to provide linkages of the scenario impacts to future business strategy and performance. Data is one of the main obstacles as there is lack in historical and factual data to link climate impacts to financial performance.

TCFD’s recommendations will likely to be via phased approach and require time especially for companies that are new in their overall Environmental, Social and governance (ESG) journey. There is also indeed, the need for a clear and practical reporting framework.

The long-term horizons of climate risks and opportunities typically extend beyond the scope of business planning and one thing that needs to be highlighted is that normally, business works on a short-term cycle, hence, quarterly financial reporting is the common practice. For financial stability, the horizon is extended, but typically only to the outer boundaries of the credit cycle — about a decade. This brings to another concern – by the time climate change becomes the defining issue for financial stability, probably it will be too late for a response, unless, drastic actions are taken right now to evaluate and disclose climate-related factors.

 

Conclusion

Without a doubt, assessing and reporting on climate impacts – risks, resilience, opportunities is challenging. However, by undertaking it, it provides the edge for companies to get the upper hand to face the adversity arising from climate change. This, is key for a truly, sustainable future.

 

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation 

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Why We Need to Avoid Greenwashing

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Recently, the authorities of the United States of America began a probe into allegations that a German multinational investment bank and financial services company that had inaccurately overstated its Environment and Social banking product offerings.

A fund subsidiary of the company is under high scrutiny over claims of its negligent approach towards establishing its Environmental, Social and Governance (ESG) investments criteria.

Authorities including the United States Securities and Exchange Commission have begun the investigations that had directly caused the German bank of losing 2.5% of its market capitalisation.

This is not the first occurrence of similar consequences. A few years ago, we have learned the same for a case regarding emissions-cheating scandal of a motor vehicle manufacturer, also from Germany. The motor vehicle company seemed to suffer from pretty severe reputational impact on top of costing the company over 30 billion dollars in penalties, fines as well as lawsuits restitution and settlement since 2015.

The whole Financial Sector should be triggered with the investigations of the German bank. The precedence of the investigations might also mean there is very likely there may be more scrutiny on ESG-related data and disclosure expectations from all banks.

Greenwashing will mislead stakeholders on how ‘sustainable’ banks are in terms of its practices, Environmental and Social products, or its governance.

Banks are very much aware that ESG is on top of the agenda across the industry. Around the globe, private and government sectors, investors and even regulators are gaming up on their ESG ambitions.

The pressure to be the ESG leaders are high for the banks to highlight to internal and external stakeholders. In doing so, overstatement and exaggeration of ESG performance and practices would likely to occur. This expose greenwashing risks towards the Banks.

Many companies nowadays self-acknowledged that they are sustainable. These companies should be cautious on these claims and ensure how they implement and how they report their Sustainability progress really reflect to the actual practices. This can be managed if the companies’ leadership are skilled and experienced on the Sustainability integration status within the organisations. If not, leaders of these companies are risking their jobs on the line, especially now there has been increased scrutiny from regulators and authorities on the transparency of companies’ Sustainability disclosures.

Apart from the impact towards the leadership roles, companies will suffer loss of revenue and investment value, loss of employees’ confidence and even reputational damage to cause loss of social license to operate.

 

Conclusion

The solution to this is companies must identify the current Sustainability knowledge and practices gaps within their organisation and take the necessary actions to address them in a way that are aligned with their business strategy.

It is understandable that companies would leverage on Sustainability reporting as a marketing tool. But it needs to be backed up with credibility. Companies are encouraged to obtain external reviews and assurance on their Sustainability data prior disclosing to the stakeholders.

This will ensure all Sustainability-related practices, targets and achievements are reported whether internally or externally, to be accurate and not misleading.

 

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation 

 

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Net-zero Emissions – What Can Banks Do?

 

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The urgency to slow the effects of climate crisis is higher than ever. According to the latest data, the world needs to reach net-zero by 2050 in order to avoid the disastrous impact of climate change. All stakeholders play a critical role, from governments, consumers and businesses of all sectors, including financial institutions. In fact, banks contribute a huge part to achieving the net-zero target. This is because, the market requires manor investment to mobilise climate action. Concurrently, this needs to be supplemented with the global commitment to shift away from financing carbon-intensive activities and projects.

Nowadays, we are seeing more and more banks are committing towards net-zero targets. However, as the definition for net-zero or net-zero finance has yet to be standardised, there are still many of these banks do not understand what ‘net-zero’ commitment really entail. This brings limitations towards creating the right and relevant changes throughout their business model to ensure climate action is being assigned effectively.

 

Net-zero. So, what does it mean?

The Paris Agreement recognizes the importance for the world to step up in the fight against climate change, including towards achieving net-zero emissions by 2050 and reduce emissions 50 percent by the year 2030.

There are three long-term targets set by the international Paris Agreement on climate change i.e. (i) focus on climate mitigation, (ii) focus on climate adaptation and (iii) focus “to make all financial flows consistent with pathway towards low-emissions, climate-resilient development”.

For financial institutions, banks in particular, the third goal is where banks act a vital role to materialize the objective of the Paris Climate Agreement. It’s paramount to make climate financing a success as banks have a unique and absolute role through investments, lending and advisory services. In line with the Greenhouse Gas Protocol and the Partnership for Carbon Accounting Financials, nowadays, companies would not only need to recognize the environmental impact of their own operations and supply chains, but they need to also be wary of the impact arising from their products and services. For banks, this is tied to their financing activities for instance, though banks nature of operations may not be directly involved in fossil fuels extraction but financing the fossil fuels extraction projects affiliates the emissions associated with the project.

So, back to the discussion on banks’ net-zero commitment, whether it is in alignment with the Paris Agreement or not, they are committing to take a big action to reduce and eliminate the carbon-intensive financing over a period of time.  “Net zero” is achieved when the amount of emissions added is no more than the amount taken away or the achieve the balance between the amount of greenhouse gas produced and the amount removed from the atmosphere.

 

Net-zero Commitment – How Far Have Banks Come?

Even before the Paris Agreement in 2015, some of the major banks have initiated the journey towards Sustainable Finance. The embrace was sparked not only due to the environmental trends but also due to its commercial opportunity. Since the Paris Agreement was established in 2015, we are now seeing more and more banks are following the likes of the JPMorgan Chase, Citibank, Bank of America, Wells Fargo, Goldman Sachs and Morgan Stanley that *pledges towards net-zero.

However, despite the global focus on mitigating climate change impacts, we still have not seen any fundamental transformation towards Paris Agreement from some of the large banks. This is because we are still seeing banks financing and even expanding their fossil-fuel portfolio.

On the bright side, we are witnessing an upward trend of banks promoting values-based banking that highlights that sustainable financing or the shift towards net-zero can also be profitable and at the same time gaining recognitions from various key stakeholders including investors, shareholders and NGOs. These banks also advocates their net-zero journey with the customers and clients and are already becoming the bank of choice for customers and clients that are more keen towards Environmental, Social and Governance (ESG).

 

What Do Banks Need to Do to Shift Towards Net-zero?

Based on industry best practices and experience gathering from bankers across the globe, two common factors have been identified that can help accelerate the transition toward net-zero financing; client engagement and product innovation.

First of all, from the very beginning, banks need to comprehend that committing towards Paris Agreement will enforce changes to the business model, including on how effective and fast it can respond to the climate risks as well as how all of this can be monitored.

Only then banks can take the necessary steps to innovate their product offerings and at the same time proactively engage their clients on the bank can tailor the climate financing journey over short, medium and long-term, to achieve net-zero.

 

Client Engagement

Banks should commit to put in place policies that are ambitious, yet realistic to align their client engagements with the Paris Agreement strategies that centralised towards supporting them towards climate transition. Obviously, as stated earlier, there are still many banks that have the strategy or the affordability to exclude most of its clients that include those in the climate-intensive sectors. Mostly, banks would state a forward limited restriction on some of these sectors such as financing coal.

Banks need to clearly state the expectations that their clients’ climate transition is necessary over a specific period of time, monitor their progress and assess whether it is all in pace with the banks’ net-zero commitment. Banks must also inform clients of the consequences if the clients are unable to meet the banks expectations that might also include an exit strategy.

There are some practical steps banks may adopt in client engagement process to achieve net-zero:

·         Banks should gather and monitor clients’ emissions data from their operations. The availability of data allows banks to develop low-carbon transition plans for their client engagement strategies.

·         Banks should set emission-reduction targets for the client to align to the banks’ net-zero commitment, guided by the completeness of emissions data as well as credible methodologies such as Science Based Targets.

·    Banks should present peer benchmarking for their clients to the industry best practices. This will indicate whether the clients are on the right track of aligning to the banks’ net-zero commitments or require improvements in terms of progress and reporting.

·   Banks should craft structured client-engagement policies to get clients on board towards the transition to low-carbon activities. The policies should also include a realistic timeframe for the transition as well as the standards that will lead to dismissal.

·      Banks should equip relationship managers with knowledge on climate change and the banks net-zero commitments. On top of that, setting the right KPIs on net-zero for the relationship managers could also be implemented to ensure the effective implementation.

 

Product Innovation

Apart from client engagements, banks also have a key role to play in providing the product offerings that can enable their clients towards low-carbon activities, such as green bonds or Sustainability-linked loans. The objective of green bonds is like any other conventional bond issuance, but green bonds raise capital for specific green activities or projects. Green bonds usually involve interest rates that are tied on clients’ activities Sustainability KPIs such as emission targets, pollution index, or even waste management. This is pretty much similar to the concept of Sustainability-linked loans with conventional loans.  

These product could further accelerate the adoption of Sustainability from clients as through these products, companies may benefit lower interest rates and at the same time be more sustainable.

Green products of banks need to be based on international standards that can provide credibility and assurance on the real impact of the clients low-carbon transitions. This is extremely crucial to avoid greenwashing from higher-polluting clients as part of the banks green financing. Hence, the monitoring of the client’s activities and projects and getting a third-party verification on the low-carbon standard alignment may be applicable.

 

Conclusion

Through financing, banks have indirect impact across every sector. The exposure highlights the significance role of banks towards the world economic sustainability. To achieve net-zero, banks cannot move alone. They need to collaborate and work together with businesses towards the common climate objective through series of engagements and delivering climate product solutions.

Regulators and governments must also be in the picture to set the tone of getting all stakeholders on board towards climate-resilient world and economy.

A lot still needs to be done. Banks, in particular, have to up their climate game to achieve this global agenda.

 

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation  

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How Can You Spend More Sustainably?

 

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As individuals, there is a lot more role we could play to be more environmentally friendly rather than recycling. We need to ask ourselves, “have we thought about the impact our wallet is having on the environment”? Every day, we are accountable towards the climate crisis. What we spend on and how we spend could make the big difference to whether we are increasing or decreasing our own carbon footprint. If you want to spend more sustainably but don't know how, try following some of these tips:

How Green is your Bank?

We all are aware that fossil fuels are the worst enemy to the environment. How do you ensure that your money isn’t being spent to fund the extraction of dirty fossil fuels?

Nowadays as Environmental, Social and Governance (ESG) demands are on top almost all financial institutions’ agenda, it is not that difficult for you to assess which are the ethical banks out there that upholds commitments towards a low carbon economy and overall sustainable practices.

Some banks have commitments to stop investments in industries such as fossil fuels, coal and mining.

Apart from that, some banks have game up their support towards a low carbon economy by increasing their renewable and energy efficiency portfolio.

 

How Green is Your Mortgage?

A lot of banks are now making it eligible for a green mortgage for property owners that purchased energy-efficient property or that runs by renewable energy. Some banks provide attractive packages with benefits such as lower interest rates and cashback offers.

Normally, green mortgages are eligible for sustainable renovations, conversions, new self-build properties and homes.

Green mortgages also encourage a more sustainable and greener standard of living that and enables property owners to reduce their property climate footprint as well as reduction in monthly electricity bills.

 

How Green is Your Investment?

Profit is a win but gaining profit while contributing to a good cause is a win-win. It is important to align our investment with our core values of Sustainability.

Nowadays, there is an increasing demand for more transparency of where our money goes and how it is invested. The key driver of this is because there has been greater focus on ESG impacts of companies we invested in.

Sustainability and Investing is all about ensuring our money is aligned to a sound sustainable economy. In order to achieve this, we can be guided by focusing on impact investing as well as ESG and Socially Responsible Investing (SRI). There are growing markets to invest your money more sustainably such as investment that can create positive change to the community, or also investing in cleaner energy sources.

 

Have You Thought About Green Loans?

You might want to consider taking a loan for you to financing the green energy or energy-efficient home installation. This can vary from installing LED lighting to equipment that can save water consumption. Green energy the reliance on coals and fossil fuels – and you can make savings on your energy bills. Innovation in technology, bolstered by financial support from the government, means that there is an abundance of sustainable energy options, preventing pollution from clogging up the atmosphere. 

Apart from that, you can also shift towards green transportation. Increase demands for Electric Vehicles (EV) across the global market indicates that there has been a shift from consumer to be more green and contribute to lower their own carbon footprint.

Some Banks also provide lower interest to the borrowers as part of the incentives to encourage customers to minimize their environmental footprint from their own property and to purchase EVs. 

 

 

 

 

 

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ESG Quick Reminder – Embrace, You Win. Avoid, You Lose

 

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Responsibility towards Environmental, Social and Governance (ESG) issues have surged in recent years. The central driver of this movement is Climate Change. Till this very date, there has been broad understanding amongst countries across the world that Climate Change is a real threat and the continuous rise in global carbon dioxide emissions must be addressed.

According to KPMG Survey of Sustainability Reporting, in 2020, that analysed the annual financial reports, corporate responsibility reports, and websites of 5,200 companies in 52 countries that provides a detailed look at global trends in sustainability reporting and offers insights for business leaders, company boards and sustainability professionals. It was found the 80% of global companies report on its ESG performance and a majority of companies worldwide have carbon targets in place.

The question is, what’s in it for companies to report on its ESG performance and targets?

 

ESG – It’s the standard of and for the future

As mentioned earlier, ESG accountability has exploded in recent years. Companies are now looking beyond financial metrics. ESG policies are meant to push companies to break away from overdependence on financial metrics, not only in ESG risk mitigation but also in strategy and business decision-making.

This could be a challenge for companies that are a few years in its ESG journey and may be a costly investment as well. At the same time, as ESG covers a wide range of areas, the key focused ESG KPIs that are unique for the company have always been one of the most highly debated topics amongst Board members and Senior Management of companies that are initiating their ESG management. However, for ESG-matured companies, especially large-cap companies, its ESG strategies are well-defined and measurable. For example, to tackle Climate Change issues arising from its operations, some companies established the ‘path to zero’ initiatives which showcase the commitment and journey towards net zero carbon emissions.

These days, it is not something new that we read on the growing trend of companies’ ESG policies and strategies as risk management as well as value creation and generation. In the United States alone, as of 2019, it was found that one out of every three dollars under professional management or approximately $17 trillion was managed in accordance with ESG metrics.

ESG metrics are not merely for compliance purposes. More and more evidences have been disclosed that showcase that ESG is not just ‘a good to have’ but instead, ESG is a crucial and strategic imperative. ESG risks can cause companies that do not factor in ESG metrics to face substantial financial impact. For example, based on an extensive four-year analysis on ESG metrics by MSCI, found that companies that are ranked with lower ESG scores experienced higher costs of capital, higher equity costs, and higher debt costs compared to companies that performed and ranked better in ESG scores.

In fact, McKinsey’s statement would best support this abovementioned finding as they have cited over two thousands studies that indicated that companies with higher ESG scores benefited a 10% lower cost of capital compared to companies with poor ESG scores. On top of that, companies with better ESG scores are said to experience lower environmental, litigation and even regulatory risks.  

 

Conclusion

Like it or not, sooner or later, all businesses are faced to confront ESG as an integral component of operating its business. Many companies that lead in its ESG journey have started reaping the financial and non-financial value from its ESG investments, and at the same time, manage to mitigate ESG risks and benefit lower operational and capital costs.

Companies are not able to avoid ESG issues anymore as ESG has proven numerous times to be a financial issue. ESG is and will continue to challenge businesses in all sectors. Thus, making ESG a factor that companies need to embrace from now onwards.

 

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation 

 

 

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Sustainability 101: How to Conduct an Effective Materiality Assessment

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Introduction

Sustainability issues and topics vary across business industries. Sustainability professionals within companies or external, advocate the risks and opportunities arising from sustainability topics to pave way for better sustainability strategies, management, performance and reporting that would benefit companies, internal and external stakeholders.

In order to do so, sustainability professionals conduct sustainability materiality assessment guided by related established national and regional standards to prioritise the most important sustainability risks and opportunities to the business as well as stakeholders.

The question is, what are the basics to ensure an effective materiality assessment?

 

Sustainability 101: How to Conduct an Effective Materiality Assessment

1.       Select

Both internal and external stakeholders present valuable and diverse insights for the business, especially from key stakeholders that have high influence and dependence on the company. Hence, it is important to first, create a list of all relevant stakeholders of the company (e.g. Board members, Senior Management personnel, Heads of Divisions, etc.) and across the value chain (e.g. suppliers, customers, regulators, etc.) and identify the personnel or groups of stakeholders that understand the company and its operations so that their feedback would be credible and holistic. That being said, selecting personnel or groups of stakeholders that have historical and frequent engagements with the company, would be a good starting point.

 

2.       Initiate

After identifying who to engage with, it is best to set a time to discuss on their participation as well as the objective of the engagement. During this stage, the communication should be concise and direct for the stakeholders to understand what is exactly needed from them and how their input would help with the outcome of the materiality assessment. Depending on the stakeholder category, it does not have to be a formal meeting, but could also be done via casual talks and discussions.

 

3.       Topics

There are many ways to identify sustainability topics. International guidelines and standards have set various approaches for companies to consider when selecting the topics that are relevant to the them and industry as a whole. Companies may also refer to publicly available information such as peer reports and the media to identify the topics and issues that are applicable. At the end of day, upon coming up with the list of topics, companies should ask themselves, “Are these topics relevant to us? Are these topics relevant to us now and in the future? Are they important to our stakeholders? Do we have great impact on each of the topics?” These are some of the few questions that can guide companies to ensure the topic selection process in on the right track.

 

4.       Prepare

Ideally, materiality assessment is best to be done formally or via direct engagements with the stakeholders. This provides the time and attention to gauge their perspective that is strategic and specific that is difficult to obtain if done via surveys or informal Q&A. 

At the same time, the discussion points must be made simple and clear (as well as examples) so that stakeholders are fully aware of the topics being discussed. The reason for this is that we need to understand that not all of them understand the entire sustainability topics or even understand sustainability risks and opportunities as a whole, that could beat the purpose of obtaining their valuable insights in the first place.

 

5.       Engage

Once the materials are prepared and reviewed, it’s first good to conduct a test run of the stakeholder engagement amongst some internal stakeholders first. This will help to get their feedback for improvements that may have been missed out on, before wider stakeholder engagement is initiated. This is also a good practice to have the stakeholder engagement coordinators to be fluent or find the right rhythm during the actual engagement. The coordinators may also find it useful as they would obtain the types of questions from the stakeholders arising from the survey so this will help them to anticipate and respond to them during the real engagement.

Companies should allow for the stakeholders to allocate some time to participate and respond to the survey or questions. They should also be allowed some flexibilities in providing their answers and may extend some additional comments on any sustainability related matters they deem necessary. This is because occasionally, the survey would not cover all areas of sustainability that cater to all stakeholders.

 

6.       Analysis

Collecting the survey from stakeholders might be a long process. Some would not even revert with the response. That is why coordinators need to reach out to larger groups of participants to have better chance of having good sample size of the completed survey.

Once there is adequate sample size, it is time to carefully derive the responses. Results of the engagement could be drawn collectively as a whole as well as a more detail comparison of different stakeholder categories such as Employee vs Board of Directors, Suppliers vs Customers or even internal stakeholders vs external stakeholders, or could be further detail such as Suppliers by age, or region.

The important aspect is to gauge what are the most common topics and issues these stakeholders have and what do they expect in the future. This will help companies to see where they can meet the demands by stakeholders with the business readiness and capabilities, and ways to improve to achieve mutual gain.

The overall results could be presented in various ways and charts. The importing thing is to present it in a way that shows clear rankings of each matter. Factors and professional assumptions to reflect the rankings (based on the feedback from stakeholders) should further support the result when being presented.

 

7.       Respond

Once the result has been discussed and presented in companies’ websites or public reports, it does not mean that it is the end of the process. The true motivation for the engagement is so that companies have a better understanding of what needs to remain, change, improve on or even discard in their current services and practices to have a more sustainable operation.

It is a good opportunity to integrate the feedback from the engagement into business and sustainability strategies, policies and initiatives. At least there is a stronger basis of why changes are being made to ensure value creation for the company.

 

Conclusion

Materiality assessment can be time consuming and requires a lot of effort, resources and expertise. However, it also provide great insights for companies to improve in their business and sustainability management. At the same time, it will also create stronger ties between business and its stakeholders from the engagements conducted.

 

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation 

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