ESG Risk Due Diligence for Companies

Investors Care About Your ESG Risks as Their Own

Investors are increasingly required to understand and integrate ESG risks into their investment decisions. This is linked to fiduciary duty and reflected in the EU Sustainable Finance Disclosure Regulation, SFDR.

For companies, this means that ESG risk is no longer only an internal sustainability topic. It is also an investor due diligence issue.

When investors assess your company, they need to understand which environmental, social and governance risks may affect your business, and how effectively those risks are being managed.

This is why investors contract sustainAX to help them understand the ESG risks of companies in their investment universe.

For your company, sustainAX has produced a 33-page ESG risk report and an ESG risk rating that our investor clients can access.

When companies talk about sustainability risks, investors often talk about ESG risks. In practice, this is often the same discussion, but seen from the investor’s point of view.

Your ESG Risk Due Diligence Is Ready

The ESG risk due diligence of your company has already been completed.

The report provides an investor-oriented view of your company’s material ESG risks, your ESG risk mitigation and the remaining ESG risk after considering available public information.

Your Material ESG Risks

Material ESG risks are the environmental, social and governance risks that are most significant for a company’s type of activity.

To make this analysis practical and comparable, sustainAX aggregates business activities into sectors. When we ESG risk research a company, we spend time understanding the relevant sector classification to ensure that the correct ESG materiality is applied.

This is an important step. The material ESG risks of a manufacturing company, a financial institution, a real estate company and a consumer company are not the same.

Once the relevant sector has been identified, we know which ESG risk areas should be prioritised in the next step of the analysis: the assessment of ESG risk mitigation.

In total, sustainAX has defined 169 different areas of interest for ESG materiality. On average, we consider around 80 ESG risk areas per company. The difference between companies is mainly explained by sector-specific risk areas.

Your ESG Risk Mitigation

After identifying the material ESG risk areas, we assess how your company mitigates those risks.

We study relevant public communication from your company for the research period. This may include annual reports, sustainability reports, investor presentations, green bond frameworks, second-party opinions, policies and other publicly available company documents.

The purpose is to assess whether your company has credible and effective ESG risk mitigation initiatives in place.

In practice, your company’s own communication needs to demonstrate to ESG risk analysts that relevant risks are identified, managed and followed up.

When the research is completed, sustainAX assesses the remaining ESG risks and writes a conclusion reflecting the company’s ESG risk profile from an investor perspective.

Your ESG Risk Rating

The sustainAX ESG risk rating is a simple indicator of ESG risk level.

However, the main value is not the score itself. The main value is the ESG risk report, which explains what ESG risks your company has from an investor’s point of view.

When we refer to your ESG risk, we mean the risk remaining after considering your company’s risk mitigation initiatives, relative to the general ESG risks that are material for your sector.

The ESG risk rating helps summarise the risk level, but it is the understanding of the ESG risks that matters most in investor decision processes.

The sustainAX ESG risk rating runs from 0 to 100, where 100 indicates the lowest ESG risk. Your company’s ESG risk rating is placed somewhere on this scale.

How to Use Your ESG Risk Due Diligence Report

The sustainAX ESG risk due diligence report can be used in several ways by companies, boards, management teams and sustainability functions.

It can support internal discussions, improve ESG risk awareness and help companies understand how investors may view their sustainability-related risks.

Board and Management Wake-Up Call

If sustainability risks are not yet a regular discussion point for the board of directors or executive management, the ESG risk due diligence report can be used as a practical starting point.

It gives management and board members an external investor-oriented view of the company’s ESG risk profile.

Materiality and CSRD Preparation

As your company works on double materiality in preparation for CSRD reporting, the ESG risk due diligence report can provide useful inspiration.

The report focuses on ESG risks from an investor perspective and can help identify risk areas that may also be relevant in broader materiality discussions.

ESG Risk Mitigation Priorities

The report can also support prioritisation of ESG risk mitigation initiatives.

By understanding which ESG risk areas are most relevant for your company and where investors may see remaining risk, management can better prioritise policies, programmes, controls and reporting improvements.

Sustainability Reporting

The ESG risk due diligence report can be used to improve sustainability reporting.

It may help your company identify whether relevant ESG risk information is clearly disclosed in annual reports, sustainability reports, investor presentations, policy documents and other public communication.

This can be particularly useful when preparing reporting for investors, lenders and other financial stakeholders.

Access the ESG Risk Due Diligence Report for Your Company

Companies can access their sustainAX ESG risk due diligence report.

Included in the access is a meeting with one of our ESG risk research specialists. In this meeting, we explain how we approached the ESG risk research of your company and how to interpret the findings.

The purpose is to ensure that your company receives maximum value from the ESG risk due diligence report.

For access, contact Patrik at patrik (at) paranthropus.se.

Patrik Dahlén

Corporate Solutions – Certified ESG Analyst

“I believe end clients, to all companies, will gradually shift their demand to sustainable alternatives. Companies that also make that shift will naturally stay competitive in the long run. Such a move will satisfy people’s demands, protect the planet, and improve companies’ profitability. It is a win-win-win situation.”