Similarly to Scale, Scope and Remediability characteristics for Impact Materiality Assessment, the main challenge for you about Stakeholders Reactions (Financial Materiality) is to determine which values of the different characteristics (Reaction Type, Reaction Strength, Reaction Time Horizon, Reaction Likelihood) suit best your company's situation. That is the tricky part of the exercise!
To help you on that, you will find hereafter some concrete examples, using 5 company's "personas", with 3 typical questions in terms of Impact Materiality (one for each ESG pilar) :
Environmental Financial Materiality Question:
"How likely are your company’s environmental practices (such as emissions, waste management, or resource use) to trigger financial risks or opportunities from stakeholders such as regulators, customers, and investors?"Social Financial Materiality Question:
"How likely are your company’s employee practices (such as working conditions, diversity, or wages) to trigger financial risks or opportunities from key stakeholders, such as employees, customers, or NGOs?"Governance Financial Materiality Question:
"How likely are your company’s governance practices (such as ethical business conduct, transparency, or anti-corruption policies) to trigger financial risks or opportunities from stakeholders like investors, regulators, or the broader society?"
Discover our personas
1. Local Food Processing Company
Sector: Food & Beverage (Agriculture/Food Processing)
Size: Medium (1,500 employees)
Global Reach: Operates within one country but exports products to neighboring regions.
Operations: Owns two processing plants and partners with local farmers.
Key Stakeholders for Reactions:
Suppliers and Contractors: The company relies heavily on local farmers for raw materials, so any changes in supplier contracts or dissatisfaction could quickly impact their operations and costs.
Customers and Clients: The company’s reputation for sustainability and local sourcing is key to customer loyalty, especially in the regions they export to.
State Authorities and Regulatory Agencies: As a food producer, regulations concerning environmental impact and food safety are critical, and any non-compliance could trigger strong, adverse reactions from regulatory bodies.
Influence of Stakeholder Reactions:
The company’s stakeholders, particularly suppliers and regulatory agencies, could have moderate to high financial influence. Positive relationships with farmers and compliance with regulations are essential to avoid disruptions in operations or fines.
2. Sustainable Fashion Brand
Sector: Textile and Apparel
Size: Small (200 employees)
Global Reach: Based in one country, with international sales through e-commerce.
Operations: Owns a small manufacturing facility and works with local and overseas fabric suppliers.
Key Stakeholders for Reactions:
Customers and Clients: Given the brand’s sustainable focus, its customer base is highly sensitive to ethical sourcing and environmental impacts. Any negative reaction from customers could significantly affect sales.
NGOs and Non-profit Organisations: The fashion industry is under constant scrutiny by NGOs for labor practices and environmental sustainability, making them key influencers in stakeholder reactions.
Suppliers and Contractors: Overseas suppliers are crucial to maintaining the company's supply chain, and disruptions due to ethical or environmental concerns could have serious financial impacts.
Influence of Stakeholder Reactions:
Customer and NGO reactions will have a strong influence, especially as sustainability is core to the brand's identity. Maintaining transparency and ethical practices is crucial for avoiding adverse reactions and protecting financial stability.
3. Regional Renewable Energy Developer
Sector: Energy (Renewables)
Size: Small (500 employees)
Global Reach: Primarily operates within one region, developing solar and wind farms.
Key Stakeholders for Reactions:
State Authorities and Regulatory Agencies: Regulatory approval is crucial for renewable energy projects. Any delays or non-compliance with environmental standards can have immediate and severe financial consequences.
Affected Communities and Broader Society: Local communities often play a key role in the success of energy projects. Resistance or negative reactions from these communities can delay or halt projects.
Providers of Financial Capital: Investors and creditors are closely monitoring the renewable energy sector for growth opportunities, and any positive or adverse reaction from these stakeholders can significantly impact future financing.
Influence of Stakeholder Reactions:
State authorities and communities will have a significant influence, with reactions from both groups potentially leading to project delays or cancellations. Positive investor sentiment is also critical for securing future funding.
4. Local Automotive Parts Manufacturer
Sector: Industrial Manufacturing (Automotive Parts)
Size: Medium (2,000 employees)
Global Reach: Operates mainly in one country, but exports parts to international car manufacturers.
Key Stakeholders for Reactions:
Suppliers and Contractors: The company relies on raw material suppliers, and any disruption in the supply chain could affect production and financial performance.
Customers and Clients: Large automotive manufacturers are key clients, and maintaining their satisfaction is crucial for the company's survival in a competitive industry.
State Authorities and Regulatory Agencies: Environmental regulations, especially regarding emissions from manufacturing processes, could significantly impact the company’s compliance costs and operational flexibility.
Influence of Stakeholder Reactions:
Customer and supplier reactions will have a strong influence, as disruptions in the supply chain or losing key clients could severely impact cash flow. Regulatory reactions also pose financial risks, particularly in terms of compliance costs.
5. Digital Financial Services Provider
Sector: Financial Services (Fintech)
Size: Small (300 employees)
Global Reach: Operates online, offering financial services to clients in multiple countries.
Key Stakeholders for Reactions:
Providers of Financial Capital: Investors and financial backers are highly sensitive to the company's growth and regulatory compliance, as they are key drivers of its success.
Customers and Clients: Trust is critical in financial services, and any negative reaction from clients regarding data privacy or service quality could lead to a loss of customer base.
State Authorities and Regulatory Agencies: Regulatory compliance is particularly important in the financial sector, where failing to meet standards could result in fines or loss of operating licenses.
Influence of Stakeholder Reactions:
Customer and regulatory reactions are key to the company’s financial materiality, as maintaining trust and compliance is critical. Investors are also closely watching the company's growth and adherence to financial regulations, making their reactions pivotal for future expansion.
How Each Persona Would Answer
1. Local Food Processing Company
1. Environmental Question (e.g., GHG emissions or waste management):
Stakeholder Group: State Authorities and Regulatory Agencies
Reaction Type: Adverse
Reaction Strength: 3 (Moderate)
Reaction Time Horizon: 2 (Medium term)
Reaction Likelihood: 3 (Likely)
Justification: The company’s energy-intensive processing plants could face stricter regulations or fines if environmental standards aren’t met, posing a moderate financial risk.
2. Social Question (e.g., Employee working conditions):
Stakeholder Group: Suppliers and Contractors
Reaction Type: Positive
Reaction Strength: 2 (Weak)
Reaction Time Horizon: 3 (Short term)
Reaction Likelihood: 4 (Certain or almost certain)
Justification: By improving working conditions and wages, the company strengthens relationships with its local suppliers, generating moderate financial opportunities.
3. Governance Question (e.g., Ethical business practices):
Stakeholder Group: Customers and Clients
Reaction Type: Neutral
Reaction Strength: 0 (No reaction)
Reaction Time Horizon: N/A
Reaction Likelihood: N/A
Justification: Governance practices are not seen as a major risk or opportunity for customers in this industry, resulting in a neutral reaction.
2. Sustainable Fashion Brand
1. Environmental Question (e.g., Sustainable sourcing or emissions):
Stakeholder Group: Customers and Clients
Reaction Type: Positive
Reaction Strength: 4 (Strong)
Reaction Time Horizon: 3 (Short term)
Reaction Likelihood: 4 (Certain or almost certain)
Justification: The brand’s commitment to sustainability leads to strong customer loyalty and financial growth as more consumers choose eco-friendly options.
2. Social Question (e.g., Labor practices in overseas supply chain):
Stakeholder Group: NGOs and Non-profit Organisations
Reaction Type: Adverse
Reaction Strength: 3 (Moderate)
Reaction Time Horizon: 2 (Medium term)
Reaction Likelihood: 3 (Likely)
Justification: NGOs are closely monitoring labor practices in the fashion industry, and non-compliance could trigger public campaigns and lead to reputational damage, presenting a moderate financial risk.
3. Governance Question (e.g., Transparency in supply chain):
Stakeholder Group: Providers of Financial Capital
Reaction Type: Positive
Reaction Strength: 3 (Moderate)
Reaction Time Horizon: 2 (Medium term)
Reaction Likelihood: 3 (Likely)
Justification: Investors appreciate transparency in the supply chain, especially for sustainable brands, creating a moderate financial opportunity through increased funding or investment.
3. Regional Renewable Energy Developer
1. Environmental Question (e.g., Land use or biodiversity impacts):
Stakeholder Group: Affected Communities and Broader Society
Reaction Type: Adverse
Reaction Strength: 4 (Strong)
Reaction Time Horizon: 4 (Immediate)
Reaction Likelihood: 4 (Certain or almost certain)
Justification: Local communities may resist renewable energy projects that affect local land use or biodiversity, posing a strong financial risk in the form of delays or project cancellations.
2. Social Question (e.g., Community engagement):
Stakeholder Group: State Authorities and Regulatory Agencies
Reaction Type: Positive
Reaction Strength: 3 (Moderate)
Reaction Time Horizon: 2 (Medium term)
Reaction Likelihood: 4 (Certain or almost certain)
Justification: Engaging communities in the planning and development of renewable projects improves relations with regulators, speeding up project approvals and creating financial opportunities.
3. Governance Question (e.g., Anti-corruption practices):
Stakeholder Group: Providers of Financial Capital
Reaction Type: Neutral
Reaction Strength: 0 (No reaction)
Reaction Time Horizon: N/A
Reaction Likelihood: N/A
Justification: Governance practices, such as anti-corruption policies, are already well implemented, leading to a neutral reaction from financial backers.
4. Local Automotive Parts Manufacturer
1. Environmental Question (e.g., Emissions from manufacturing):
Stakeholder Group: Providers of Financial Capital
Reaction Type: Adverse
Reaction Strength: 4 (Strong)
Reaction Time Horizon: 2 (Medium term)
Reaction Likelihood: 3 (Likely)
Justification: High emissions from manufacturing could deter investors concerned with ESG standards, posing a strong financial risk if the company does not act to reduce its environmental footprint.
2. Social Question (e.g., Worker health and safety):
Stakeholder Group: State Authorities and Regulatory Agencies
Reaction Type: Adverse
Reaction Strength: 3 (Moderate)
Reaction Time Horizon: 3 (Short term)
Reaction Likelihood: 4 (Certain or almost certain)
Justification: Poor worker safety practices could trigger strong reactions from regulatory bodies, resulting in fines or legal action, which would have immediate financial consequences.
3. Governance Question (e.g., Compliance with international standards):
Stakeholder Group: Customers and Clients
Reaction Type: Positive
Reaction Strength: 3 (Moderate)
Reaction Time Horizon: 2 (Medium term)
Reaction Likelihood: 3 (Likely)
Justification: Maintaining compliance with international standards enhances customer confidence, particularly with large automotive clients, creating moderate financial opportunities through continued business partnerships.
5. Digital Financial Services Provider
1. Environmental Question (e.g., Data center energy use):
Stakeholder Group: State Authorities and Regulatory Agencies
Reaction Type: Neutral
Reaction Strength: 0 (No reaction)
Reaction Time Horizon: N/A
Reaction Likelihood: N/A
Justification: The company’s digital operations have minimal environmental impact, resulting in a neutral reaction from regulators.
2. Social Question (e.g., Data privacy for customers):
Stakeholder Group: Customers and Clients
Reaction Type: Adverse
Reaction Strength: 4 (Strong)
Reaction Time Horizon: 4 (Immediate)
Reaction Likelihood: 4 (Certain or almost certain)
Justification: Any data breach or mishandling of customer information would trigger immediate, strong reactions from clients, resulting in a significant financial risk through lost trust and customer attrition.
3. Governance Question (e.g., Compliance with financial regulations):
Stakeholder Group: Providers of Financial Capital
Reaction Type: Positive
Reaction Strength: 4 (Strong)
Reaction Time Horizon: 2 (Medium term)
Reaction Likelihood: 4 (Certain or almost certain)
Justification: Strict compliance with financial regulations enhances investor confidence, leading to a strong financial opportunity through continued investment and financial support.