Material Issues

Material Issues

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There are hundreds of Environmental, Governance and Societal (ESG) issues. Key to the investment case is to understand which are relevant to the industry and company you are interested in, and to learn as much as possible about how these issues impact on the business.

Before FarSight can rate leadership response, we:

Define the universe of material issues

Weight each issue for its materiality (importance) to the firm being analysed

Write materiality reports on how the issue may impact on the business’ ability to create value for its providers of capital in the medium- to long term

Universe of issues

The first step in the FarSight model is to define the universe of non-financial issues. These are issues that, if not managed responsibly, may have a negative impact on the company’s ability to create value over a three- to five-year term. The FarSight model recognises 24 issues within six themes: Governance, Ethics, Labour, Society, Customers and Environment:

Further detail relating to issues

Click on each of the GELSCE headings beow for detailed descriptions of each of the 24 issues making up FarSight’s issue universe.

Governance
  1. Board balance & effectiveness
  2. Audit independence
  3. Leadership selection & preparation
  4. Remuneration and incentives
  5. System integrity
Governance
  1. Fair labour
  2. Occupational health & safety
  3. Skills development
Governance
  1. Product suitability
  2. Treatment of customers
  3. Access to products & services
  4. Consumer ID & data privacy
Governance
  1. Moral DNA of the organisation
  2. Theft, fraud and corruption
  3. Anti-competitive behaviour
Governance
  1. Community
  2. Internal equity
  3. Industry equity
  4. External societal risks
Governance
  1. Energy
  2. Water
  3. Bio-resources
  4. Biophysical impact
  5. External environmental risks
These issues are common to all companies in all sectors and across all geographies, though they may be described differently. For example, Product suitability will refer to health impact in the food and pharmaceutical sectors, but will refer to affordability in the financial sector.

You should be able to assign any issue you may come across into one of these issue categories above. For example, representation of women in the workplace would be an issue under Internal equity. And the immigration crisis would be an issue under Community impact, relations and development. Issues not obviously categorised, can be found in the issue index.

The following further detail relating each issue is only available on request:

  • Scope and boundaries per issue
  • Industry variants of sub-issues
  • Government legislation relevant to issues
  • Cross references between issues
  • Indicators of vulnerability
  • Responses in mediation
  • Red flag behaviour
  • Links to recent media articles
  • Links to FarSight reports by sector
  • Links to FarSight reports by issue

Next step is to weight each issue in accordance with its materiality to the business.

Having completed our analysis, FarSight produces Industry Materiality reports that describe the most material GELSCE issues, as well as operational and financial issues, specific to the industry sector, with further differentiation where individual companies face unique challenges.