Similarly to Stakeholders reactions part, the main challenge for you about Resources Dependencies (Financial Materiality) is to determine which values of the different characteristics (Financial Effect Type, Sensitivity to Change, Time Horizon, 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 Resource Dependency Question:
"To what extent does your company rely on natural resources (e.g., raw materials, water, land) for its operations, and how would changes in the availability, cost, or quality of these resources affect your finances?"
Social Resource Dependency Question:
"How dependent is your company on human resources (e.g., local labor, skilled workers, community support) for its operations, and how would changes in the availability, quality, or cost of this resource affect your financial performance?"
Governance Resource Dependency Question:
"How reliant is your company on regulatory compliance (e.g., environmental, labor, financial regulations) to operate, and how would changes in regulations or policies affect your financial position?"
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.
Key Resource Dependencies:
Natural Resources (Water and Raw Materials): The company relies heavily on access to water for food processing and on local agricultural products for raw materials.
Human Resources (Local Labor): The company depends on local farming communities and factory workers for its operations.
Financial Resources (Energy Costs): The company’s energy usage for processing is a significant factor in its operational costs, and changes in energy prices could directly affect its financial performance.
Influence of Resource Dependencies:
Natural resources, particularly water and raw materials, have a major influence. Any changes in availability, quality, or cost (e.g., water scarcity or rising energy prices) would create substantial financial risks. Human resources, in terms of local labor, are also critical to maintain consistent production levels.
2. Sustainable Fashion Brand
Sector: Textile and Apparel
Size: Small (200 employees)
Global Reach: Based in one country, with international sales through e-commerce.
Key Resource Dependencies:
Natural Resources (Sustainable Fabrics): The company sources organic and eco-friendly fabrics, making it reliant on sustainable cotton, wool, and other materials.
Supply Chain (Overseas Suppliers): The brand depends on international suppliers for manufacturing, particularly in developing countries where ethical labor practices are key.
Reputation and Financial Resources (Sustainability Certification): Access to sustainability certifications (e.g., Fair Trade, organic) is critical to the company’s market positioning and financial performance.
Influence of Resource Dependencies:
The company's dependence on sustainable and ethically sourced materials makes natural resources and supply chain stability a major financial concern. Tightening regulations or scarcity of eco-friendly materials would significantly impact costs and product availability.
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 Resource Dependencies:
Natural Resources (Land and Weather Conditions): The company relies on specific geographical locations with favorable land and weather conditions for renewable energy projects.
Regulatory Environment (Permits and Subsidies): Access to government subsidies, permits, and incentives for renewable energy development is crucial.
Human Resources (Technical Expertise): The company depends on skilled engineers and technicians to develop and maintain renewable energy projects.
Influence of Resource Dependencies:
The company’s financial success is tightly linked to its dependency on natural resources (land, weather) and the regulatory environment (permits, subsidies). Any changes in land availability, weather patterns, or regulations could result in significant financial risks.
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 Resource Dependencies:
Natural Resources (Raw Materials): The company relies on metals, plastics, and other raw materials to manufacture automotive parts.
Supply Chain (Suppliers of Raw Materials): The company depends on a stable supply of raw materials from domestic and international suppliers.
Human Resources (Skilled Labor): The company relies on skilled labor for manufacturing processes and assembly.
Influence of Resource Dependencies:
Raw materials are a critical dependency for this company, and any increase in costs or shortage in materials (e.g., metals, plastics) could have a direct negative impact on production. Human resources in the form of skilled labor are also key, and a shortage or increase in labor costs would affect financial performance.
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 Resource Dependencies:
Digital Infrastructure (Data Centers and Cloud Services): The company relies on digital infrastructure (data centers and cloud computing) to provide financial services.
Regulatory Environment (Data Privacy and Financial Compliance): The company depends on compliance with data privacy regulations and financial standards to operate smoothly.
Human Resources (IT Talent): The company relies heavily on IT and cybersecurity specialists to maintain its platform and ensure data protection.
Influence of Resource Dependencies:
Digital infrastructure, such as reliable cloud services and data centers, is a major dependency. Any disruption in access or rising costs for these resources could pose significant financial risks. Additionally, regulatory changes related to data privacy or financial compliance would heavily influence the company’s operational costs.
How Each Persona Would Answer
1. Local Food Processing Company
1. Environmental Question (Natural resources like water or raw materials):
Resource Dependency: Water for processing and agricultural products from local suppliers.
Financial Effect Type: Negative
Sensitivity to Change: 3 (Highly sensitive)
Time Horizon: 2 (Medium term)
Likelihood: 3 (Likely)
Justification: The company relies heavily on water and agricultural products. Water scarcity or crop failures due to climate change would have a direct financial impact on production capacity and costs.
2. Social Question (Local labor and community support):
Resource Dependency: Local labor for farming and processing.
Financial Effect Type: Negative
Sensitivity to Change: 2 (Moderately sensitive)
Time Horizon: 2 (Medium term)
Likelihood: 3 (Likely)
Justification: Labor shortages or increased labor costs could affect production, though the company could mitigate this risk by adjusting wages or sourcing additional workers.
3. Governance Question (Compliance with food safety and environmental regulations):
Resource Dependency: Compliance with food safety and environmental regulations.
Financial Effect Type: Negative
Sensitivity to Change: 3 (Highly sensitive)
Time Horizon: 2 (Medium term)
Likelihood: 3 (Likely)
Justification: Stricter regulations on food safety or environmental impacts could raise costs for compliance, significantly affecting operational costs.
2. Sustainable Fashion Brand
1. Environmental Question (Sustainable materials like organic cotton):
Resource Dependency: Sustainable fabrics (organic cotton, wool).
Financial Effect Type: Negative
Sensitivity to Change: 4 (Critically sensitive)
Time Horizon: 3 (Short term)
Likelihood: 3 (Likely)
Justification: The company’s brand relies heavily on access to sustainable fabrics, and any scarcity or rise in costs for these materials would severely impact production costs and brand value.
2. Social Question (Ethical labor practices in overseas supply chain):
Resource Dependency: Ethical labor in overseas supply chains.
Financial Effect Type: Negative
Sensitivity to Change: 3 (Highly sensitive)
Time Horizon: 2 (Medium term)
Likelihood: 2 (About as likely as not)
Justification: Ethical labor practices are a key part of the company’s image, and any disruptions or violations in the supply chain would affect reputation and financial performance.
3. Governance Question (Compliance with sustainability certifications):
Resource Dependency: Compliance with sustainability certifications (Fair Trade, organic).
Financial Effect Type: Positive
Sensitivity to Change: 2 (Moderately sensitive)
Time Horizon: 2 (Medium term)
Likelihood: 3 (Likely)
Justification: Access to sustainability certifications helps the company differentiate itself in the market, creating opportunities for premium pricing and customer loyalty.
3. Regional Renewable Energy Developer
1. Environmental Question (Land and weather conditions for energy projects):
Resource Dependency: Favorable land and weather conditions (e.g., wind, sunlight).
Financial Effect Type: Negative
Sensitivity to Change: 4 (Critically sensitive)
Time Horizon: 1 (Long term)
Likelihood: 2 (About as likely as not)
Justification: The success of renewable energy projects depends on consistent access to land and favorable weather conditions, and any changes in these factors would have a major financial impact.
2. Social Question (Skilled labor for technical expertise):
Resource Dependency: Skilled engineers and technical staff.
Financial Effect Type: Negative
Sensitivity to Change: 3 (Highly sensitive)
Time Horizon: 3 (Short term)
Likelihood: 3 (Likely)
Justification: A shortage of skilled labor would delay projects and increase operational costs, posing a direct risk to the company’s financial performance.
3. Governance Question (Permits and government subsidies):
Resource Dependency: Access to government permits and renewable energy subsidies.
Financial Effect Type: Positive
Sensitivity to Change: 3 (Highly sensitive)
Time Horizon: 2 (Medium term)
Likelihood: 3 (Likely)
Justification: Government subsidies and favorable regulations are critical for the financial viability of renewable projects, and any changes in these conditions would affect profitability.
4. Local Automotive Parts Manufacturer
1. Environmental Question (Access to raw materials like metals and plastics):
Resource Dependency: Raw materials (metals, plastics).
Financial Effect Type: Negative
Sensitivity to Change: 4 (Critically sensitive)
Time Horizon: 2 (Medium term)
Likelihood: 3 (Likely)
Justification: The company is highly reliant on raw materials, and any price increases or supply chain disruptions would have a critical impact on production and profitability.
2. Social Question (Skilled labor for manufacturing):
Resource Dependency: Skilled labor for production processes.
Financial Effect Type: Negative
Sensitivity to Change: 2 (Moderately sensitive)
Time Horizon: 3 (Short term)
Likelihood: 3 (Likely)
Justification: A shortage of skilled labor or rising labor costs would moderately affect the company’s ability to maintain production levels, leading to potential delays or increased operational costs.
3. Governance Question (Compliance with international trade regulations):
Resource Dependency: Compliance with international trade and environmental regulations.
Financial Effect Type: Negative
Sensitivity to Change: 3 (Highly sensitive)
Time Horizon: 2 (Medium term)
Likelihood: 3 (Likely)
Justification: Changes in international trade regulations, particularly those related to environmental standards, would raise compliance costs and affect export viability.
5. Digital Financial Services Provider
1. Environmental Question (Access to energy-efficient digital infrastructure):
Resource Dependency: Data centers and cloud services.
Financial Effect Type: Negative
Sensitivity to Change: 2 (Moderately sensitive)
Time Horizon: 2 (Medium term)
Likelihood: 3 (Likely)
Justification: Rising costs for energy or disruptions to digital infrastructure (e.g., data centers) would moderately affect the company’s financial performance by increasing operational costs.
2. Social Question (Access to skilled IT and cybersecurity specialists):
Resource Dependency: Skilled IT and cybersecurity professionals.
Financial Effect Type: Negative
Sensitivity to Change: 3 (Highly sensitive)
Time Horizon: 3 (Short term)
Likelihood: 3 (Likely)
Justification: A shortage of IT professionals would significantly impact the company’s ability to provide secure and reliable services, leading to potential financial losses due to customer attrition or security breaches.
3. Governance Question (Compliance with data privacy regulations):
Resource Dependency: Regulatory compliance with data privacy laws (e.g., GDPR).
Financial Effect Type: Negative
Sensitivity to Change: 3 (Highly sensitive)
Time Horizon: 2 (Medium term)
Likelihood: 4 (Certain or almost certain)
Justification: Failure to comply with data privacy regulations would result in fines or legal penalties, significantly affecting financial stability and customer trust.