Business owners and materiality: The “outside-in” approach

Private business owners and entrepreneurs know that relevant data is vital to their businesses, in particular their financial performance. Identifying the most relevant and useful data rests on the concept of materiality. This matters also to customers, stakeholders, and investors.

UBS recently explored what materiality is and why it matters to business owners – particularly as its definition increasingly extends to cover sustainability metrics around environmental, social, and corporate governance (ESG) performance. Read the full article here.

Today, UBS explores sustainability materiality by examining how ESG factors in the outside world can affect an entrepreneur’s business. Covering topics such as costs, risks, and the mitigation strategies founders can adopt to maintain profitability and sustainability.

So, what is “outside-in” sustainability materiality?

“Outside-in” sustainability materiality describes how companies assess the sustainability factors outside of their control that have the biggest effect on their financial performance. This approach is analogous to investors that integrate ESG factors into their investment process.

In practice, a business owner works with managers to list environmental, social, and governance factors that have the biggest influence on their company’s operations and outputs. For example, an agribusiness or a beverage company may identify water scarcity or drought risk as the most material factor.