Building an ESG culture and the importance of Material Topics
When looking to build an ESG culture there are the obvious starting points of strategy, policies and frameworks, but what really makes the difference is identifying the ‘material topics’. These are the ESG topics that matter most to stakeholders, both within the organisation and externally. Stakeholders include employees, management, board members, investors, customers, partners, suppliers, distributors, communities, and regulators. Identifying material topics is the crucial first step in building an organisation-wide culture attuned to the firm’s ESG objectives. Operational Risk Software can be key to supporting this discipline.
Of the 9 key steps to managing ESG listed below, identifying the material topics are second only to the fundamental step of identifying the firm’s ESG objectives.
How to Manage ESG – 9 key steps
- Identify the firm’s ESG objective
- Identify ESG topics from the ESG objective
- Assess impact by and on firm and influence on stakeholders of each ESG topic
- Assess threat and mitigation of each ESG material topic
- Identify key ESG metrics and set escalation levels
- Capture and analyse ESG incidents
- Stress material topics to identify possible ESG weaknesses
- Use Monte Carlo Analysis to identify further ESG weaknesses
- Create ESG Report
Identifying, Assessing and Monitoring Material Topics
To develop an enduring ESG culture, there must be processes in place to identify, assess and monitor material topics to ensure the correct topics are prioritised and managed. Other topics will need to be monitored because, over time, topics that matter to stakeholders may well change and evolve, and therefore new topics can become material. This process needs to be matched with producing outcomes in line with the corporate ESG appetite.
Discovering material topics necessarily requires a policy of looking at a wide variety of topics. One current trend is to focus on climate change, and yet this is just one part of the ‘environment’ section of ESG. It is important that organisations have equal focus on all three elements of ESG in order to achieve both the financial benefits, and to build and maintain a strong ESG culture.
Identifying the impact on the firm and on stakeholders of each topic will help to determine if the topic is material. And having decided that a topic is indeed material, a second assessment must be made of the threats to each material topic both in terms of the impact and of the likelihood.
ESG built for purpose platform
The complex nature of monitoring material topics, the sheer number of stakeholders involved, with varying degrees of interest, the differing levels of impact and likelihood, as well as the fact that many are outside of the direct control of the organisation, means that a purpose-built system is required. Spreadsheets and emails simply can’t cope, and their use will result, at best, in a lack of any robust form of audit trail and at worst, complete chaos with a failure to manage ESG threats which could result in severe reputational damage, and the associated financial losses.
ESG is a journey rather than a destination
With so many potential material topics to manage, and to avoid being completely swamped by data, even when using a purpose-built tool it is as well to take an agile approach. By formulating a project timeline where there is a program of continual delivery milestones, rather than a ‘big bang’ go live target date, firms have the opportunity to apply lessons learned as they go.
By identifying a long term strategy made up of short term events, organisations can focus on the top or most pressing material topics initially and bringing in more to the process as times goes by. Ensuring that each material topic is fully analysed and documented provides a more credible and sustainable approach that is far less likely to result in calls of greenwashing.
For more information about how RiskLogix could help your organisation to manage ESG operations, contact us today: enquiries@risklogix-solutions.co.uk
