Projective Group’s annual study of over 160 of the largest financial and legal organisations in the world analysed more than 1,500 individual materiality disclosures to provide a truly global perspective of the prominent non-financial risk factors keeping boards and financial executives up at night.
At the vanguard of an approaching tsunami of national sustainability regulation’s is the EU’s Corporate Sustainability Reporting Directive (CSRD). With the largest of companies due to publish their first CSRD reports in 2025, estimates suggest that in total the CSRD regulations will impact as many as 50,000 EU firms and a further 10,000 non-EU firms.
While the regulation has been criticised from some corners as being overly onerous, and un-proportionate for smaller organisations, no one can deny that the CSRD represents a step change in the way companies will report and publicly disclose environmental, social and governance information, creating the accuracy, transparency and comparability required for investors to properly assess and value a company’s sustainability performance.
No one can deny that the CSRD represents a step change in the way companies will report and publicly disclose environmental, social and governance information.
A key element of the CSRD, the Double Materiality Assessment (DMA) is already proving to be a hugely valuable addition to the corporate risk management toolkit. The Projective Group study identified that the DMA approach is already widespread within the world’s largest universal banks, with clear evidence that the method is being adopted by leading companies who apply the DMA to support horizon scanning, strengthen non-financial risk management and align business planning around material Impacts, Risks and Opportunities (IROs). The upcoming the CSRD implementation can only increase the adoption of this critical tool across the other sectors (Insurers, Investors, FMIs, Law Firms).
The DMA process forces companies to consider both financial and impact materiality (hence double). Financial materiality relates to business risks and opportunities. For example, climate change posing a financial risk as a result of an increased likelihood of your data centre flooding or the financial opportunity to invest in net zero / energy transition infrastructure. The second type of materiality considered is impact materiality, reflecting a business’ impact on the external environment. For example, your investment in oil and gas extraction having a negative impact on the climate would be considered as impact materiality.
Interestingly unlike the EU CSRD – the IFRS Sustainability Disclosure ISSB standards, which are in the process of being rolled out by more than 20 jurisdictions representing nearly 55% of global GDP, more than 40% of global market capitalisation, and over half of global greenhouse gas emissions, including the UK, Japan, Singapore, Australia, Canada, Brazil, Costa Rica, Bolivia, Hong Kong, South Korea, Malaysia, Kenya, Nigeria and China., only requires companies to consider single (i.e., financial) materiality, and we wonder whether this regulation is missing a trick?
Results
Moving back to the study – of over 1,500 individual materiality disclosures analysed, nearly half of all disclosures were related to Governance, an area only lightly covered by the CSRD rulebook. Looking at the structure of the CSRD itself, only 1 of the 10 topical standards addresses Governance, compared to 5 for Environmental, and 4 for Social.
The overriding message of the study is that good governance is key to progress. In fact, strong governance culture and ethics was the most cited subtopic across all regions. Other prominent governance priorities included the development of new sustainability linked products and services, and cyber security, data privacy and operational resilience.
The overriding message of the study is that good governance is key to progress.
Moving on to the social agenda, which made up 37% of total responses, the war on talent remains a major headache for financial services firms, as anyone tasked with trying to hire and then retain top talent will know from firsthand experience.
When it comes to the environment, which perhaps surprisingly only represented 16% of the over 1,500 disclosures, the overwhelming focus was on managing the impacts, risks and opportunities from climate change mitigation. It is clear to anyone in the industry, a complex and critical challenge for the financial sector over the coming years will be managing down ‘financed emissions’ while at the same time maintaining a functioning business model.
A complex and critical challenge for the financial sector over the coming years will be managing down ‘financed emissions’ while at the same time maintaining a functioning business model.
The study identified several interesting regional differences, with Asian firms focused less on cybersecurity and data privacy than others and more on emerging trends like ethical AI and demographic challenges. Similarly for all the talk of north American firms turning away from climate change, and DE&I issues, these topics still featured more prominently in North American disclosures than other parts of the world – we look forwards to seeing next year if these findings survive the incoming president! In the EU, the regulatory agenda (including DORA, AI Act, Whistleblowing, CSDDD, CBAM, etc.) will continue to focus minds on emerging non-financial risk management topics and disclosure requirements. We look forward to seeing how all these trends continue in the 2025 study.
Conclusion
We live in an increasingly complex and disruptive world, shaped by macro-level challenges -think health crises, geopolitical instability, evolving cyber threats, and mounting economic pressures. To navigate this uncertainty, business leaders must adopt a diverse toolkit if they are to remain resilient and prepared. Throw into the mix regional and industry-specific differences and you understand why using a DMA is so valuable. It allows users to map and measure their risk profile for non-financial matters and is an indispensable component for forward-thinking organisations.
To navigate today’s uncertainty, business leaders must adopt a diverse toolkit if they are to remain resilient and prepared.
We all know that the regulatory burden for small and medium sized companies in the financial services sector is huge. So, while we agree that the introduction of a DMA will present challenges for your organisation, these must be balanced against the value of the additional information you will gain about your non-financial risk. Leading companies already apply the DMA to support horizon scanning, strengthen non-financial risk management and align business planning around material Impacts, Risks and Opportunities (IROs).
Talk to Projective Group today about how we can help you to both deliver your DMA, and unlock the benefits from increased understanding and management of non-financial risks. You can download the full presentation here.
Established in 2006, Projective Group is a leading Financial Services change specialist.
We are recognised within the industry as a complete solutions provider, partnering with clients in Financial Services to provide resolutions that are both holistic and pragmatic. We have evolved to become a trusted partner for companies that want to thrive and prosper in an ever-changing Financial Services landscape.
