Materiality in Industry Context ESG Scores

Policy Influence concerns transparency around the activities and expenditures of companies when engaging in legislative, political and public discourse. It includes political donations, membership of trade associations or groups, as well as lobbying and spending related to ballots or referendums. Relevant is not only the amounts spent but also the issues supported. It requires transparency regarding corporate policies, guidelines and activities, as well as education of management and employees on responsible involvement, appropriate contributions and the prevention of misinformation.

Risk and Crisis Management refers to governance structures and internal control processes for the effective management of shorter and longer term or emerging risks. It requires the cultivation of an effective risk culture, the use of sensitivity analyses and stress testing. Risk management is preventative and crisis management corrective, responding to an unforeseen event. Proper risk management procedures and practices, including appropriate controls and culture, will enable an organisation to deal with a crisis or emergency more effectively.

Supply Chain Management refers to the procurement policies, systems and practices of companies to manage the sourcing, processing and transformation of resources to deliver products and services. Key priorities include resource optimisation and reducing risk exposure, along with the integration of ESG standards beyond own operations. Supply chain risks can relate to for example political unrest, economic misconduct, social impact or environmental harm. It may require supplier collaboration, training, assessments, audits and reporting related to sourcing issues such as conflict minerals.

Tax Strategy refers to an approach to governance, compliance and reporting as regards tax related norms and laws. Tax avoidance is the legal practice of minimising tax bills by using strategies such as profit shifting. It is often characterised as obeying the letter but not the spirit of the law. Therefore, the issue also considers tax transparency and good tax governance. Relevant is the application of minimum tax rates, tax incentives, fair share taxation and the allocation of revenues and profits across jurisdictions.

Pollutants contaminate air, water and soil. They include oil spills and emissions of pollutants such as lead, mercury, volatile organic compounds (VOC), nitrogen oxides (NOx) and sulphur oxides (SOx). Waste refers to the management of hazardous and non-hazardous waste, liquid and solid, generated by production and consumption. Related company performance highlights activities such as programs to prevent and reduce pollution and waste, including monitoring, treatment and disposal methods. Waste includes various industry specific types of waste, such as municipal waste, food waste, packaging waste, construction waste and mineral waste.

Water concerns the withdrawal, use or consumption, pollution or discharge of water. Through their operations, products and services companies may undertake activities to conserve water. Water also encompasses risks related to water, notably exposure to water stress or scarcity and the management of related regulatory, supply, stakeholder and quality risks. This includes water pollution due to the release of toxic chemicals or micro-plastic pollutants.

Companies impact biodiversity through their operations and value chains. Land use can be seen as proxy for the level of impact. Biodiversity involves ecosystem diversity, species diversity and genetic diversity. It implies the impact and dependency of companies on different ecosystem services. It reflects a systems view, versus considering different natural resources separately. Damage can involve biodiversity loss through for example deforestation. The management of these includes the avoidance of activities near sensitive sites, and the application of mitigation hierarchy approaches to minimise losses and achieve net positive impact.

Environmental Policy & Management refers to the policies, processes and systems of companies to conduct environmental management, including a reliable and effective management of their environmental performance and impacts. The goals, objectives and targets of Environmental Management Systems (EMS) imply all stages of the value chain, including operations and products or services, and is subject to verification, audit and certification. Its associated monitoring and corrective actions include the tracking of any environmental violations and advancing the return on environmental investments.

The sourcing and efficient use of resources, natural or living as well as non-living or human-made implies materials, energy, water, land and biomass. Sustainable Raw Materials focuses in particular on sustainable agriculture, sustainable forestry and the use of sustainable raw materials in building and construction. Good practices involved include certification schemes to promote organic or sustainably produced goods. The subject also includes animal welfare and the production of certified animal products.

Sustainable Products and Services refers to the environmental, health, and social attributes of companies’ products and services. It covers both environmental health and human health. Related life cycle and stewardship strategies consider market opportunities for more sustainable products and services, for example more resource efficient products and more socially responsible services that positively contribute to societal development. The topic includes industry specific issues such as health and the nutritional value of food products, sustainable financial services, circular fashion, green buildings as well as more climate friendly transport and energy supplies.

Privacy Protection concerns the handling of personal information. For an organization it refers to the policies, systems and procedures in place to ensure proper collection, use, storage and destruction of personal data and respecting the rights of data subjects. These include employees and customers. The protection of the personal data is closely followed by many regulators and requires compliance with laws,regulations, and voluntary standards. Implementation mechanisms include the integration of a privacy policy system into companies’ risk and compliance management.

Human Capital Management is about the effective management of human capital, a critical part of the intangible assets of any company. Human capital management areas range from recruitment and development to performance management and compensation. Development activities include education, training and coaching, ensuring employees have the necessary abilities and skill sets to perform well. The topic also encompasses talent attraction and retention, related employee support programs such as flexible working arrangements and stress management, as well as employee surveying to track core employee wellbeing metrics. Aspects evaluated under this subject include appraisal systems, incentives, turnover rates and employee engagement.

Labor Practices concerns relations and practices performed within, by and on behalf of companies. It includes the promotion of diversity, inclusion and equality. Central are core labor standards such as respecting freedom of association and the right to collective bargaining, as well as fair working conditions and social protection. Efforts to eliminate discrimination require, among others, assessment of the composition of the workforce and equal pay. Critical in some industries is the living wage considering working hours and the basic needs of workers and their families.

It is recognised that business enterprises should support and respect human rights. Related responsibilities include the need to avoid contributing to and seeking to prevent adverse human rights impacts. It requires the protection of human rights in own operations, supply chains, and business relationships. Companies commit to, among others, prevent human trafficking, forced labor and child labor. At stake is the rights of not only employees, but all citizens including vulnerable groups. Business action includes due diligence, assessments, mitigation and remediations.

Society & Community Relations refers to companies’ strategies to minimize the negative and optimize the positive impacts of their operations, products and services on the communities and societies in which they operate. This includes their developmental impact in boosting access, such as access to water and sanitation, electricity, healthcare and finance. Industry specific issues implied include financial inclusion, social integration, mine closure management and infrastructure. The topic also covers processes such as stakeholder engagement and accountability mechanisms.