Founder of new reinsurance consultancy John Morrey and Dr Eberhard Witthoff, use a fictional scenario to illustrate how risk management and sustainability can complement each other

Harry Risma was driving home from work, thinking. He had been the head of risk management at Motor Home Automotive Group (MOHO) for five years, during which time he had reinforced the company’s internal control structure, fine-tuned all the key business processes and consistently achieved good results in his negotiations with the insurance consortium as well as with the banks.

But, more recently, he was feeling somewhat uneasy. Environmental, social and corporate governance (ESG) reporting was now on the agenda and was weighing heavily on his shoulders, as there was no doubt that it would have to be tackled – and soon.

CEO Herbert Cargo was also getting visibly nervous whenever the subject of ESG came up. CFO Jane Doe, on the other hand, didn’t seem particularly interested in the topic. “The main thing is that the financial KPIs are on target,” was her usual mantra.

Then there was the overly enthusiastic email Risma had received from the head of marketing. She wanted to discuss the new ‘MOHO goes Green’ campaign with him and determine how she could emphasise the corporate ambition of ‘green and environmentally friendly MOHO production’ in an effective way. Risma was frankly uncomfortable about the whole prospect.

Only Danette Firmin, the new head of sustainability, impressed him with her overall calm and the impression that she had already immersed herself in the whole ESG topic. In addition, it was she who had assembled the entire top management for an emergency meeting on the matter.

At the ESG meeting the next morning the atmosphere was generally tense. “Thank you, Danette, for calling this meeting,” began the CEO. “I’m extremely worried about how we’re going to cope with all these new regulations. The directives are massive, and the various topics are constantly evolving.

“I’ve already spoken to our auditor who wants swift assurances that we will be incorporating all of this in our business practices and reporting asap.”

Firmin then took the floor and explained that in the future, it would not be enough for the auditor to just sign off the sustainability report. MOHO would have to take action to radically adapt its own business strategy and this would require a serious review with changes to many different aspects.

Risma agreed. The responsibility of top management for ESG integration was clear. The head of legal and compliance had also confirmed this, and he knew from the CEO’s approving gesture that ESG now had the full attention of everyone, at the highest levels of the group.

“How do we get started?” Cargo asked, his voice full of urgency and apprehension.

Firmin stepped up to the whiteboard and began her explanations: “The most important consideration for our ESG plan is to involve all stakeholders from the very outset. This is the only way to acquire all the necessary perspectives on ESG from interested parties.

“Then we need to complete the ‘double materiality’ exercise [see box, right]. Finally, building on this, we must clarify the requirements and disclosures relevant to us in accordance with the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS).”

Initial conclusions

After an intensive and interactive discussion, Firmin summarised the initial conclusions as follows:

• “We need a clear understanding of the overall impact our company has on the climate and on biodiversity, as well as how our stakeholders are affected by this. Business relationships across our entire value chain (on both the customer and supplier side) must be considered.”
• “We must identify the actual and potential specific impacts (both negative and positive). As already indicated, this also involves consultation with our affected stakeholders. In addition, we will obtain objective professional reports and analyses on the issues raised from external experts in the various fields.”
• “Finally, we will assess the materiality of the above-mentioned impacts and determine the current material sustainability situation. In this step, we will also set reporting thresholds to determine which of the impacts we have to consider in our sustainability statement.”

Over the next few weeks, all MOHO’s business activities, as well as its business model, business relationships and upstream and downstream value chains, were carefully analysed. Particular attention was given to the business plan and strategy as well as the annual financial statements. The same was done for MOHO’s products, and even the services related to those products.

In addition, the geographical locations of all activities in MOHO’s value chains were examined. A subgroup analysed the competitive market situation as well as media reports, existing industry-specific benchmarks and publications on general sustainability trends.

Finally, a time horizon for the materiality analysis was documented, considering short-, medium- and long-term effects.

Another subgroup dealt with the strategy for involving stakeholders, to ensure that they were properly included in the materiality analysis process. To this end, lists were drawn up of the most important stakeholder groups that were, or could be, affected by MOHO’s upstream and/or downstream activities.

It was discovered, for example, that there were potential problems with some suppliers of production components, who may have ignored the use of child labour in cobalt mines, and that certain NGOs had already publicised these abuses.

Impacts, risks and opportunities

An important next milestone was MOHO’s list of potentially significant sustainability issues and the associated impacts, risks and opportunities (IROs).

For this, MOHO was able to draw on existing knowledge within the company (for instance, current compliance processes or feedback from existing stakeholder engagement, but also from its captive in Luxembourg, which had extensive risk data).

However, it was also possible to gain new insights into material sustainability issues and IROs – for example, by taking a closer look at the IROs from the list of potentially material sustainability issues, assessing their respective impact (acute or potential, negative or positive), and also by working out the risks and opportunities more clearly.

In addition, the list of potential material sustainability topics was collected from the IROs. In this context, the ESRS data points can act like a checklist to identify material sustainability topics.

Last but not least, the captive was able to contribute plenty of valuable data and risk insights to the individual ESRS data points.

The results are in

After a few more weeks, the CEO received the final list of material sustainability topics based on an assessment of the materiality of MOHO’s IROs. They included a detailed impact materiality assessment, outlining the actual negative impact, magnitude, scope and severity.

For the actual positive impacts, MOHO determined their scope, range and, also, estimated the probability of occurrence. As requested by Firmin, the involvement of the stakeholders was documented in detail in this step and the link to the assessment of their interests was ensured. Risma was able to contribute significantly here with useful input and data, thanks to his years of experience as risk manager.

MOHO was now able to create a list for the financial materiality assessment. Here, suitable quantitative and qualitative thresholds were based specifically on the expected financial impact in terms of performance, financial position, cash flows, access to and cost of capital. Here too, the reference to internal risk management and the group’s internal risk transfer via the captive was of great importance.

The template also included an analysis of the risks and opportunities of sustainability as well as the probability of occurrence and the assessment of their potential financial impact.

After applying the defined thresholds, MOHO summarised the results of the impact and financial materiality analysis. The outcome was impressive: the final list included all material sustainability topics with significant impacts leading to material risks and opportunities. MOHO was now ready for the CSRD report.

It was also now clear for MOHO that once a sustainability topic had been identified as material, it must then refer to the requirements in the respective thematic ESRS to determine the relevant information that must be disclosed on that particular topic.

The extremely useful feedback from the materiality analysis also made it possible to identify previously undetected risks at the level of the company’s suppliers. This allowed MOHO’s management to get a proper grip on governance risks such as frivolous “greenwashing” through exaggerated marketing statements.

In the end, everyone involved was very satisfied with the results. The involvement and buy-in of top management had paid off for the success of the CSRD project. The early involvement of IT also made it possible to set up important interfaces for data collection, which created synergies in the reporting system and prepared the ground for future automation of the various processes.

Finally, MOHO’s supervisory board was extremely impressed with the materiality analysis and what it revealed about MOHO. This process generated valuable insights into MOHO’s business processes and value chain that had not previously been visible. MOHO successfully realised the benefits of these insights and was able to incorporate them into its strategic decision-making. The first CSRD report for 2025 was successfully launched for publication.

ESG: a team effort

While our fictitious case study is not exhaustive, it demonstrates that sustainability reporting is achievable through collective effort. The example illustrates how risk management and the sustainability department can complement each other in a major project, creating synergies within the captive insurance sector.

We hope you enjoyed meeting the MOHO Group team and perhaps recognised some of the challenges they faced, which may be similar to those you encounter with ESG regulations in your own professional environment.

Moving forward, we plan to revisit the MOHO team and delve deeper into some of the difficulties they had to deal with. We would be delighted to hear from you if there are specific ESG areas you would like us to address in future articles.