Sustainability risk paradigm shift and Materiality


As per the definition of the sustainable finance disclosure regulation (SFDR), Sustainability risk means an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment.

The current and upcoming focus on sustainability, emerging from climate change and the crisis which Covid-19 has caused, has pushed decision makers to adjust their strategies on this particular risk management where previously little importance was being given as it was considered of having limited financial risk exposure.

One of the ways to address business risks and the impacts when a business is planning and implementing its sustainability strategy is through Materiality, which is the foremost important element. It’s crucial for any business to know which sustainability factors are most likely to materially impact their financial position or operating performance, their portfolios, their products, their stakeholders and the society at large. 

As such, a materiality and stakeholders’ assessment will drive the way to address and evaluate the risks and impacts to manage in maintaining the business’ values, mission and long-term objectives.

At this time, businesses adhering to sustainability principles have become a preferred investment target for private equity, hedge funds and institutional investors. As such, addressing sustainability risks through materiality assessments will definitely benefit each and everyone, and will give boost to your reputation as well. 

Komuldeepsing Busawah from Auren Luxembourg