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Datamaran executive talk: The financial reality of non-financial risks

14 November 2019 - By Alex Voskou

As part of our European user Forum in Amsterdam on Friday 8th November, we hosted an executive talk, “The financial reality of non-financial risks,” where our panel of experts discussed ways of making emerging risks a key part of boardroom discussions.

Covering the regulator, investor, practitioner and service providers perspectives on how a materiality assessment can serve this purpose, our speakers were:

  • Elena Arveras, Sustainable finance and non-financial reporting, European Commission;
  • Marieke van de Putte, Director, Risk Advisory, EY;
  • Herman Mulder, Chair of Impact Economy Foundation;
  • Tjeerd Krumpelman, Head of Advisory, Reporting and Engagement, ABN AMRO;
  • Marjella Lecourt-Alma, CEO and Co-founder, Datamaran;
  • Ian Van der Vlugt, Director of Product, Datamaran (moderator).

Stopping the silos

Beginning literally at the beginning, our CEO and Co-founder, Marjella Lecourt-Alma, described how she started Datamaran with the idea that siloed sustainability has to stop. “If sustainability’s not integrated,” she argued, “then companies are not genuine about it.” The panel proceeded to give their perspectives on integration from different standpoints.

EU User Forum

The European Commission is attempting to de-silo sustainability by turning non-financial disclosures into law. Companies have been required to include non-financial statements in their annual reports since 2018, which helps investors, consumers, policymakers and other stakeholders to evaluate the non-financial performance of large companies, and encourages these companies to develop a responsible approach to business.

The idea of integration was perhaps most succinctly captured by Herman Mulder. In asserting that materiality and risk management should be connected, he said “They’re friends.” If a sustainability topic is material, it should hit the risk team. Integration between sustainability and risk is paramount, given that the concepts are ultimately inclusive of each other. “As an investor, when I’m looking at my investees, I’m looking at the materiality matrix, not just the outcome but also how it came about - the process,” he said. “It matters who’s behind it and who signs off - it should be integrated in the governance.”

A more holistic view

From the corporate banking standpoint, Tjeerd Krumpelman referred to ABN AMRO’s journey of integrated thinking, coupling risk management with sustainability. "You need to support a process to internalize stakeholders’ expectations and take better decisions,” he said. “Board members need the tools to think in an integrated way.

EU User Forum - Speakers

Speakers (from left to right): Ian van der Vlugt (moderator), Herman Mulder, Tjeerd Krumpelman, Marieke van de Putte and Marjella Lecourt-Alma

Tjeerd believes companies should not approach materiality from a sustainability, ESG or non-financial risk angle. Instead, he said, they should try and view materiality from the view of the stakeholders of the organization. This gives a more holistic view on materiality and value-creation, which is more relatable for board members and senior managers. By changing the process a little, the end result is better both internally and externally.

To work on an integrated materiality analysis, a company needs all parties at the table – finance, investor relations, communications. They need representatives from their clients. At ABN AMRO, they call this an integrated thinking community, where the voices of all the different stakeholders are represented. Meeting every quarter to discuss their progress, this forum gives them the opportunity to work on a real list of value-creating topics, agree on definitions and assess their relevance for the bank. “It’s important to get the right words before they reach external stakeholders,” said Krumpelman.

Where risk and materiality come together

Giving the service provider standpoint, Marieke van de Putte mentioned that EY was previously only focused on very traditional financial risks, such as revenue and sales. But the most pressing risks are in external landscapes, and they’re typically non-financial. Until now, non-financial issues were not part of their risk consultancy offering.

The panel agreed that non-financial risks have a concrete financial impact. “Companies have to be in control of their external risks,” said Marieke. “How can they achieve that without identifying material issues? You need continuous monitoring – that’s where risk and materiality come together.” Continually monitoring and maintaining control of external risks allows companies to transform them into opportunities. For EY, continuous monitoring is very much a work in progress.

It’s important to have structured information on what these external risks are. But how do you get data on that? “When you want to know what’s going on in terms of external risks, the resources are quite limited,” said Marieke. “There’s the WEF report but you would like more information during the year… You need more reliable information than what you can find on Google, in a more structured way too.”

We’re now at the point where AI supports continuous monitoring, giving companies an opportunity to structure these risks as they identify them. This allows them to produce a complete picture of their external risks and act on them in a timely fashion. That’s why EY is very excited about collaborating with Datamaran to offer the most complete risk advisory services supported by technology.

“We want to see which markets outside the sustainability crowd are serious about integration,” added Marjella. With this collaboration with EY, which becomes the first of the Big 4 accountancy firms to integrate these risks into its mainstream risk consulting, sustainability is not siloed.

The future

From a regulatory standpoint, “It is quite likely there will be revisions,” said Elena Arveras. Is the EU reporting framework still fit for purpose? What are the shortcomings of the Non-Financial reporting Directive (NFRD)? Modifications in legislation will ensure disclosures are more comparable and reliable, with companies publishing information that’s relevant for users.

For all those companies not sure how to initiate boardroom discussions on non-financial issues, Tjeerd Krumpelman offers one piece of advice: “Just get started. It won’t be perfect straight away, but get started and learn from each other. Don’t let perfect be the enemy of good.”

It will certainly be interesting to see how companies approach this subject in the months ahead, against an ever-changing social, economic and legislative backdrop. A big thank you to our speakers and to all our attendees for an extremely worthwhile discussion. We look forward to seeing you all again next year!

ENDS


TCFD: An update on corporate disclosure following the second status report

In June 2019, the TCFD released its second status report, indicating increased adoption of its recommendations.

To coincide with its release, we are updating our previous analysis into the extent to which this adoption has been reflected in supporters’ corporate disclosure.

The analysis shows that, whether they’re supporters or non-supporters of the TCFD, companies are now talking about climate change more than ever before. More in detail, climate change is predominantly discussed through a risk rather than an opportunity lense – with 54% of FinServ TCFD supporters referring to the topic in relation to risk and 20% in relation to opportunity in 2018. 

To read the full report, please fill in the form on the right.

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