If you’re struggling to prioritise your sustainability risks, this post is for you.
I prefer using a clear & straightforward four-quadrant approach (as illustrated in the graphic).
🔸Vertical Axis (North – South): Potential Sustainability Risks
🔸Horizontal Axis (West – East): Legal/Regulatory Risks
👇 This yields four distinct zones and should be prioritised as outlined respectively:
🔹 Critical Risk Zone (High Sustainability Impact + High Legal Complexity)
> This is your top priority, combining maximal sustainability impact with significant legal exposure. For example, forced labour in supply chains not only results in severe human rights abuses but also triggers legal penalties under modern slavery & supply chain due diligence laws.
🔹 Low-value Risk Zone (High Legal Complexity + Low Sustainability Impact)
> Issues here carry significant legal burdens but minimal sustainability gains. Persisting here drains resources & invites compliance failures, making quick de-escalation vital. For instance, SFDR Article 6 mandates sustainability risk disclosures even for non-ESG products, requiring justification if such risks are irrelevant.
🔹 Strategic Opportunity Zone (High Sustainability Impact + Low Legal Complexity)
> These issues offer significant sustainability benefits coupled with manageable legal complexity. Though lower on immediate risk-mitigation needs, they present strategic opportunities worthy of structured investment. Don’t overlook these as they’re key for long-term impact. For example, climate transition plans under voluntary frameworks (SBTi, TCFD, SASB) boost credibility with investors & enhance long-term climate risk management.
🔹 Routine Risk Zone (Low Sustainability Impact + Low Legal Complexity)
> Minimal sustainability impact & negligible legal exposure. Essentially “business-as-usual” items, these require periodic review to ensure they don’t drift into higher-risk categories. For example, minimal ESG clauses for low-risk suppliers generally have low risk exposure but may fail to keep suppliers accountable as regulatory expectations rise.
In practice, your first logical step is to conduct regular materiality assessments to accurately gauge & understand risk levels & profiles. Following this, implement comprehensive & dynamic risk controls.
🚫 DISCLAIMER: This post provides general insights & should not substitute legal or professional advice. Consult a professional for tailored guidance.