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Conducting Financial Materiality Assessments
Conducting Financial Materiality Assessments
Andrew Lingley avatar
Written by Andrew Lingley
Updated over a week ago

Adding a Risk

The initial phase of ESG risk management involves identifying the various risks that may impact your company, including issues like carbon footprint, water usage, waste management, fair employment practices, workplace safety, and supplier conduct, among others.

We recommend creating Risk(s) that are most relevant to your organisation.

Simply follow these steps to add a Risk:

  1. Navigate to your preliminary list. Click on the Financial Materiality section that is located below each issue.

  2. If Financial Materiality is Not assessed, there will be an empty state.

  3. Click Add a Risk on the top right corner to create a new Risk.

  4. A side menu will appear labelled Risk Details.

    1. Give the Risk a unique name to make it easier to identify later.

    2. Provide a description of the Risk, including processes and situations that may cause the risk, keeping ESG aspects front of mind.

  5. Next, click the Risk evaluation tab

    1. Select the Likelihood of the Risk.

    2. Select the Consequence severity of the Risk.

    3. Add a justification. This is a requirement for auditing and reporting.

    4. Select where in the Value Chain this Risk occurs.

    5. Select the Time Horizon this Risk occurs in.

    6. (Optional) Input your estimation for the financial impact* of the Risk.

  6. (Optional) Click the Results tab to view the result. This will occur in real time, based on your selections above.

  7. Click Save and close.

  8. The Risk will now appear in the list of risks and in the Risk Matrix.

Legend: Empty state of a Financial Materiality Risk matrix. Add a new risk by clicking the button in the top right-hand corner.

Assessing a Risk using a Risk Matrix

A 5x5 risk matrix is a recognized tool to assess the severity and likelihood of risks associated with Environmental, Social, and Governance (ESG) requirements.

Using the risk matrix, you can easily create, view and have understanding on the threat of an issue to your organisation.

Severity Levels:

  1. Insignificant (1): Minor non-compliance with no significant impact on the environment, society, or governance practices.

  2. Minor (2): Isolated incidents or non-compliance that have a limited impact and can be managed through normal operational procedures.

  3. Moderate (3): Issues that result in noticeable non-compliance with ESG standards, leading to moderate adverse effects that require management attention.

  4. Major (4): Significant non-compliance with ESG requirements causing serious environmental damage, social repercussions, or governance failures with potential legal and financial implications.

  5. Catastrophic (5): Severe breaches of ESG practices leading to widespread environmental catastrophe, major social unrest, or governance breakdown, possibly incurring major financial losses and irreparable reputational damage.

Likelihood Levels:

  1. Very likely: The event is expected to occur in most circumstances, possibly multiple times.

  2. Likely: The event will probably occur in many circumstances.

  3. Possible: The event might occur at some point in time.

  4. Unlikely: The event is not expected to occur, but it is still a possibility.

  5. Rare: The event is unlikely to occur

Legend: Your populated Risk Matrix provides you with an overview on the potential hazards of an issue to your company.

Adding an Opportunity

ESG Opportunities encompass factors related to Environmental, Social, and Governance aspects that companies should recognise and proactively address.

Generally, ESG Opportunities span a wide array of potential benefits that - if effectively managed - can positively impact a company's profitability, reputation, and long-term viability. Recognising and capitalising on these opportunities is crucial for companies aiming to enhance their sustainability and competitive advantage.

Legend: Create your first Opportunity for an issue by clicking

Add your first Opportunity

We recommend creating Opportunities that are the most relevant to your organisation. Simply follow these steps.

  1. Navigate to your preliminary list. Click on the Financial Materiality section located below each issue.

  2. If Financial Materiality is Not assessed, there will be an empty state.

  3. Click Add an Opportunity in the top right-hand corner to create a new Opportunity.

  4. Open the Opportunity Details side tab.

    1. Give each Opportunity a unique name to make it easier to identify later.

    2. Provide a description of the Opportunity, including processes and situations that may create the Opportunity, especially pertaining to ESG aspects.

  5. Next, click the Opportunity evaluation tab.

    1. Select the Degrees of potential upside of the Opportunity.

    2. Add a justification. (This is a requirement for auditing and reporting.)

    3. Select where in the Value Chain this Opportunity sits.

    4. Select the Time Horizon for when this Opportunity would be created.

    5. Select all the applicable Opportunity types.

    6. (Optional) Input the estimation for the financial impact* of the Opportunity.

  6. (Optional) Click the Results tab to view the results. Your results will show in real time based on your selections above.

  7. Click Save and close.

Note: Opportunities will appear in the list of opportunities below an issue, not in the Risk Matrix.

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