Concept of ESG Materiality, one of the major challenges in ESG analysis is determining which risks and material to accompany, and this is highly dependent on both, the industry and sector that a company operates in. For example, environmental risks are likely to be much more significant for an oil and gas company, than for say a technology company. To help investors deal with this issue, many organizations have developed guidance on materiality, and one of the leading organizations for this is the Sustainability Accounting Standards Board, or SASB, which has produced a materiality map highlighting which risks are likely to be material in different industries. Now, you can see across the top of this map are all the major industries and down the side are the major risk categories, starting off with environmental risks, followed by social risks, then human capital, then business model and innovation, and finally, leadership and governance. Now, one thing to note is that the SASB matrix doesn't provide detail on corporate governance risks, but many investors view these as material to all companies regardless of sector anyway, so should always be of relevance in conducting governance analysis. Now, within the map, the dark gray blocks highlight the most material issues in each industry, and the light gray blocks highlight moderately material issues. If the block is white, then this is an issue which is unlikely to be material in an industry. So, taking our example from before, which was oil and gas companies, which sit within extractives and mineral processing industry, then you can see that most of the environmental risks are dark gray. And, this means that these risks are material within that industry. Whereas comparing this with, for example, a technology industry, where most of the environmental risks are light gray or white, and that shows that the environmental risks are unlikely to be very material within this industry. But, even within an industry, the material issues can vary between sector. For example, the food and beverages industry includes agricultural products, food producers, alcoholic beverages, and non-alcoholic beverages, all of which could have very different issues. However, the SASB Materiality Map helps deal with this by allowing you to drill into the various sectors. And, as you can see here, for the food and beverages industry, this allows you to view the material risks by sector. Now, for the beverages industry, if say for example we were gonna analyze ESG risks for Coca-Cola, we could see that environmental risks, social capital risks, and business model risks are the major focus areas here. Within this, the environmental risks are greenhouse gas emissions, energy management, and water management, particularly across the agricultural and manufacturing operations. The social capital risks are customer welfare, which is likely to incorporate health implications of sugary drinks, as well as selling practices, and that would include how products are advertised to different customer groups. Finally, the business model risks are product lifecycle and that would include how drinks' containers are recycled. It also includes supply change management risk and material sourcing risk. And, that would include ensuring that ingredients are sourced in a sustainable way.
