Not all ESG analyses clearly distinguish between financial risk and impact. However, examining how ESG factors affect a company is crucial for investment decisions. Double materiality analysis offers deeper insight into both the financial impact of ESG factors on a company and the company’s societal and environmental impact, which can become financially significant over time. 

This report highlights how distinct risk and impact signals can support investors’ evaluation of company incidents. Using a double materiality approach can help investors distinguish between controversies primarily affecting business risk and those with significant stakeholder or environmental impact. 

Readers of this report will learn:

• The components of Morningstar Sustainalytics’ controversy assessments.
• The factors used to evaluate stakeholder and environmental impact, as well as the financial risks of incidents.
• How investors can leverage the distinct risk and impact signals to support various strategies.