In today's newsletter, I share my conclusions from the last reporting season, during which we at MATERIALITY worked on nearly 15 reports compliant with ESRS standards. I would like to point out that the examples below do not come from any single company that is a client of MATERIALITY, but are derived from various work on different reports for different entities, as well as information obtained from companies I have contacted in other areas of my activity.
My biggest surprise in recent months has been the realization that many companies do not have a structured risk management function. There is no such department, no single specialist responsible for this task, nor is it formally assigned to any other person in the company. In many companies, risk is simply managed „by feel.” In the era of ESRS, however, it would be appropriate to organize this function. Otherwise, it will be difficult to describe the risk management system and its role in reporting on sustainability issues.
Furthermore, if we identify risks based on intuition, it is difficult to refer to their parameters (the scale of financial consequences and probability), and it is their combination that helps us determine whether a given type of risk is significant or not. I believe that the requirements of the new standards will help many companies to finally organize their risk management systems and start keeping records of them.
Risk identification and assessment are clear and understandable tasks in companies that have a well-organized risk management function. However, when talking to internal risk experts, there was always surprise when we said that there are two other aspects related to sustainability issues: opportunities and impacts. These two aspects also need to be continuously identified and assessed. The reactions that followed such a conversation always fell into two categories: „We are in charge of risk, we will not deal with any opportunities or impacts, end of discussion,” or „OK, explain to us what these opportunities and the significance of impact are all about – we will either modify our risk assessment system accordingly or build parallel systems to address all aspects of significance assessment in the future.”
There is no denying that in the case of the latter reaction, we were on the only right path – taking over the materiality assessment process by the company. The assessment can be outsourced to a specialized consulting firm the first time around, and support can be requested for certain elements of the assessment in subsequent years. However, in the long term, it is not possible to rely solely on outsourcing, as this would simply not be effective. The materiality assessment methodology used at MATERIALITY is designed in such a way that it can be transferred in its entirety to the client, who, with the right amount of willingness and allocation of certain resources, will be able to conduct the assessment independently in the future. The organizational unit responsible for risk management will always play a major, and in many cases dominant, role in this assessment.
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