1 of 14

The Imperative for Impact Management

Clarifying the relationship between impacts, system-wide risk and materiality

2 of 14

The Impact Management Platform �

A coordination between the leading providers of sustainability standards and guidance

Our vision: impact management is key to achieving societal and environmental goals and needs, and therefore must be mainstreamed across the economy

Our mission: supporting the emergence of a complete, coherent and interoperable set of norms and resources for impact management

Partners

Observers

2

3 of 14

The Partners’ joint workstreams

Providing clarity on the practice �of impact management �Building a clear, consensus view of impact management through the Actions of Impact Management and supporting resources

Driving interoperability�Collectively advancing the coherence, clarity and interoperability of their resources, including through reaching consensus on key concepts and terminology

R&D Agenda�Addressing system-wide issues that affect the effectiveness of impact management resources and practices, such as the naming and classification of sustainability topics, and industries and sectors

Policy engagement (cross-cutting)�Aligning emerging policy and regulation with the Partners’ consensus view

3

Suggested talking points:

In its initial phase the IMP is focusing on establishing foundational content that reflects the Partners’ consensus view of impact management.

To support these efforts, the Partners’ collaboration is structured around four workstreams :

Driving clarity on the practice of impact management

The Partners are working together to build a clear, consensus view of impact management; both in terms of the required actions of impact management common to any type of organisation, and the resources to support organisations in implementing the actions.

Pursuing interoperability:

The Partners are finding ways to advance the coherence, complementarity and interoperability of their resources, namely through consensus building on key concepts, terminology and mappings.

Research and development:

The Partners are addressing system-wide issues that affect the effectiveness of impact management resources and practices, such as the naming and classification of sustainability topics, as well as industries and sectors.

Policy and regulatory engagement:

This workstream sits across all of the previous workstreams, as a way to align emerging policy and regulation with the consensus view of the Partners.

4 of 14

The Imperative for Impact Management

A thought piece arguing that impact management is not only a human and environmental imperative, but is also critical to sustaining economic and financial performance of the market as a whole.

4

5 of 14

The current dominant view: a focus on impacts primarily when reflective of idiosyncratic risk

Enterprise

Idiosyncratic risks and opportunities

People and the natural environment

Impacts

Dependencies

An organisation’s impacts on people / environment may present risks to the organisation

Risks can also rise from dependencies on social and environmental resources

5

Notes:

This slide is animated to break down the concept of narrow approaches to sustainability-risk management.
You will need to click through to make the three bullet points appear separately.

Suggested talking points:

One of the salient points in the thought piece on ‘The Imperative for Impact Management’ why we need to go beyond narrow approaches to sustainability-related risk management by adopting impact management.

There are two key reasons for this:

[Click for first bullet] There are several ways in which an organisation’s impacts on people or the natural environment may present risks to its own sustained financial performance, including by posing reputational, regulatory, operational and technological risks.

[Click for second bullet] Risks may also arise from the organisation’s dependencies, or reliance, on environmental and social resources. An organisation’s depletion of human, social and natural resources through negative impacts may directly affect its ability to continue to use such resources, and thereby give rise to operational risk.

[Click for the third bullet] It is therefore important to manage impacts on people and natural environment, because it helps to sustain social and environmental resources, but also improves the organisation's risk management (and therefore helps it to sustain its financial performance.

An example is on the following slide…

6 of 14

The current dominant view: a focus on impacts when reflective of idiosyncratic risk

Enterprise

Idiosyncratic risks and opportunities

People and the natural environment

Impacts

Dependencies

For example:

These impacts give rise to entity-specific (‘idiosyncratic’) risks

An oil company needs to manage its impacts and dependencies to mitigate risks

Oil spill

Ecosystem damage

Reputation risk

Legal risk

Oil spills have negative impacts on people and the natural environment (by causing ecosystem damage)

6

Notes:

This slide is intended to be use alongside the previous slide
It is animated to break down the concept of narrow approaches to sustainability-risk management.
You will need to click through to make the three bullet points appear separately.

Suggested talking points:

Here is an example using an oil company.

[Click through for first bullet] If the company has an oil spill, it will have obvious negative impacts on people and the natural environment by causing ecosystem damage

[Click through for second bullet] These numerous impacts will go beyond affecting people and the planet, and will contribute to the company’s own risks (otherwise known as ‘idiosyncratic risk’). For example, the reputational risks resulting from the spill may drive down demand for its products and services; and the legal risks involved could significantly increase costs to the business.

The company is therefore incentivised to manage its impacts and dependencies as a way to manage its own risks and opportunities; and of course, importantly, to preserve social and environmental ecosystems.

7 of 14

The systemic dimension of environmental and social issues

Enterprises, investors

and financial institutions

Business and finance

Dependencies

Impacts

7

Notes:

The idea is that this and the following three slides are used in succession.

Suggested talking points:

Currently, many enterprises, investors and financial institutions approach the management of sustainability issues primarily from the perspective of idiosyncratic (or ‘entity-specific’) risks and opportunities.

What remains underappreciated, however, is the fact that impacts also represent contributions to ‘system-wide’ risks and opportunities, even when they do not (yet) pose quantifiable entity-specific risks.

Mounting evidence supports the idea that sub-optimal environmental and social outcomes undermine overall economic performance, and thereby undermine corporate and financial returns, since economic growth and corporate profits tend to go hand-in-hand.

8 of 14

Market economic and financial outcomes are embedded in �social and environmental systems

The economic cost of increases in income inequality amounted to 4.7 percentage points of cumulative GDP �growth between 1990 and 2010 in selected OECD countries.

8

9 of 14

Market economic and financial outcomes are embedded in �social and environmental systems

A partial collapse in select ecosystem services could cost 2.3% (US$ 2.7 trillion) in global GDP on an annual basis by 2030.

9

10 of 14

Market economic and financial outcomes are embedded in �social and environmental systems

Fully closing the global gender gap in the labour market was

estimated to add USD 28 trillion to global GDP (26% of global GDP) by 2025, relative to business-as-usual scenario

10

11 of 14

Impacts also reflect contributions to the accumulation of system-wide risks

11

Suggested talking points:

This figure illustrates how all economic activity as we know it is permanently embedded within and dependent on environmental and social systems

It illustrates how, in an embedded economy, the impacts generated by organisations give rise to idiosyncratic risks and contribute to the accumulation of system-wide risks.

Importantly, impacts can contribute to system-wide risk without presenting (significant) reputational, regulatory or operational risk for an individual organisation.

While Enterprises A, B and C all have impacts on people and the environment, only Enterprises A and B face idiosyncratic risks associated with their impacts (e.g. reputation risks).

The impacts of Enterprise C are not associated with idiosyncratic risks.

However, the impacts of Enterprise C are still relevant to the market as a whole, and the impacts of A, B and C may contribute to the accumulation of systemwide risk to Enterprises D and E, even if these enterprises do not have impacts themselves

12 of 14

Why is impact management relevant?

Impact management can support all types of organisations to:

Relevant from an ‘impact materiality’ perspective

Relevant from a ‘financial materiality’ perspective

Operate sustainably and/or contribute to solutions

Manage risks and opportunities that are specific to the organisation

Manage system-wide risk and opportunities

12

Notes:

This slide has been slightly animated to demonstrate the concept of “lenses”. No click-throughs are required.

Suggested talking points:

There are three key reasons for the relevance of impact management:

To operate sustainably and/or contribute to solutions: by managing impacts, organisations can operate within sustainability thresholds, contribute to progressing the Sustainable Development Goals (SDGs) and promote well-being.

To manage idiosyncratic risks and opportunities: by managing impacts, organisations can prevent sustainability-related risks to financial performance from arising and seize opportunities to improve organisational financial performance.

To manage system-wide risk and opportunities: by managing impacts, organisations can manage their contributions to system-level risks and opportunities, promoting the sustained financial returns and stability of markets, and well-being for people and the environment.

13 of 14

Implications for the materiality of information on impact

Two types of information on impact may be financially material

Often overlooked

13

Suggested talking points:

The relationship between impact, system-wide risk and the sustained financial and economic performance of the market presented in the Platform’s thought piece provides an additional reason for why information on impacts and impact management may be considered financially material.

Current interpretations and implementation of the concept of financial materiality do not always recognise the importance of information on entities’ contributions to the accumulation of system-wide risks.

Because of investors’ exposure to and interest in managing system-wide risk, information on entities’ impacts and impact management processes may well affect their decision-making, rendering the information material.

A consequence of this observation is that the information needs under a comprehensive and forward-looking financial materiality perspective overlap with the information needs under an impact materiality perspective to a greater extent than is sometimes believed.

The relevance of impacts and impact management for sustaining long-term financial returns means the perceived dichotomy between impact and financial materiality and their associated information needs may be somewhat overstated, even if the starting point, usages and objectives under these materiality perspectives remain distinct.

14 of 14

A call to action�The implication for key actors

Enterprises, investors and financial institutions�should adopt impact management.

Governments �should encourage and enable the mainstreaming of impact management to achieve global policy objectives.

Standard-setters and international organisations in impact management �should collaborate towards a complete and coherent system of standards and resources.

Standard-setters and policymakers �should appropriately recommend the disclosure of information on impacts and impact management.

14

Notes:

This slide is slightly animated but no click-throughs are needed.

Suggested talking points:

In the Platform’s thought piece, the Partners make the following call to action in response to their observations regarding the relationship between impacts, system-wide risk and materiality.

Enterprises, investors and financial institutions should adopt impact management in order to operate sustainably, promote well-being, and mitigate idiosyncratic and system-wide risks.

Governments should encourage and enable the mainstreaming of impact management in order to achieve global policy objectives, including the Paris Agreement and the 2030 Agenda.

Standard-setters and international organisations providing impact management resources should collaborate towards a complete and coherent system of standards and resources.

Because information on impacts and impact management may be financially material, standard-setters and policymakers should appropriately recommend the disclosure of this information.