External Materiality and ESG: What You Should Be Looking For

Material risk management, or materiality, is a concept that is growing in importance as companies try to determine the material threats to their business.

As a business leader thinking about operational risk, do you consider internal risks first? For example, when considering operational risk, are regulatory compliance, talent retention or catastrophic asset failures resulting in production shutdowns top of mind? When you consider external risks, do you land on those that are most obvious, such as shifts in regulatory burdens, currency fluctuations, competitive threats, etc.…? (The list goes on and on.)

Like most leaders, you probably pay attention to ongoing issues, while staying as up to date as possible about evolving challenges and threats to the business so you aren’t caught off guard.

The problem with this approach is that it leaves an organization in an inherently vulnerable position. It’s hard to truly stay up to date. External risks are dynamic because the sources of external risks are virtually limitless. It could be that public opinion is shifting on the importance of having a carbon reduction goal. It could be that all of you peers are talking about equitable pay practices and your company isn’t moving in that direction yet. It could be that a regulation is coming that your busy compliance team simply hasn’t had the time to research and determine the impact on your existing business practices.

How do you determine how these, and all the other risks out there impact your organization? How do you decide which risks are most material to its reputation and performance?

Materiality: The Why and How Issues Are Important to Your Business

Material risk management, or materiality, is a concept that is growing in importance. Historically, companies that conducted structured materiality assessments bought countless hours from an audit or consulting firm (ERM, KPMG, EY, etc.) and had them do an annual assessment of external risks that should be top of mind for the business. The problems with this approach are numerous: It’s time-consuming, it’s expensive, it’s static and it’s open to the bias of the workers performing the assessment.

Under the best of circumstances, external materiality is complex and challenging. Which is why many companies are turning to vendors like Intelex and Datamaran to help determine the external risks that are material to their business. As noted by Datamaran in Materiality Definition: The Ultimate Guide, “A material issue can have a major impact on the financial, economic, reputational and legal aspects of a company, as well as on the system of internal and external stakeholders of that company.”  

Datamaran offers an artificial intelligence (AI)- and machine learning (ML)-enabled way to search, gather and analyze information on your company and your industry peers, as well as the constantly evolving regulatory climate. With the Datamaran for Executives platform, you can even monitor individual risks and watch their velocity over time as social, financial and regulatory expectations change for your business.

From these data points, Intelex can help you make progress on your priorities. Think of it this way: Datamaran tells you where to dig and Intelex is the shovel. Intelex imports assessed risks from Datamaran seamlessly into the Intelex ESG Software Application, where you then use them as decision points to provide the data-driven rationale behind the improvement programs you select to mitigate the identified risks.

Take ESG for example: Datamaran might identify that establishing a carbon-neutral operating posture, talking about product stewardship and ensuring safe working conditions in your supply chain are all material to your business in the eyes of external audiences. You can then port those risks into Intelex, where you manage the tasks, initiatives, audits, communications and emissions calculations that prove your company cares and is taking legitimate steps to drive performance in these areas.

To continue expanding your knowledge on Materiality and ESG, check out our latest ESG resources. Data collection and reporting are just the beginning, see how Datamaran and Intelex can help power your ESG strategies.

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