Materiality assessment is the process of identifying and evaluating environmental, social and governance issues that may affect the Group's business and the interests of stakeholders. The purpose is to shape the development of KB Group's strategies, objectives and reporting.
KB Group respects the human rights of all individuals with whom it engages. Activities of the Group companies influence interests of different parties. It has identified the following stakeholder groups whose interests are impacted to a high degree and that are respected in all activities of the Group:
- Individual clients (consumers)
- Business and corporate clients including municipalities
- Financial markets including rating agencies and bond investors
- Regulatory bodies
- General public including future generations
- Employees and other workers
- Business partners including suppliers
The Group seeks to understand the interests and needs of the stakeholders by directly engaging with them and by building and continuously developing and updating the body of knowledge of respective KB Group’s experts.
Process to determine material topics
In the process of determining significance of individual topics for each stakeholder group, as well as for growth, cost and risk development, the Group starts its work with the general issues structured in dimensions according to SASB Standards created by Value Reporting Foundation . This list identifies material issues that are reasonably likely to impact the financial condition or operating performance of a company and, thereby, are most important to investors. The scope of issues is expanded in the following discussions.
The outcome of materiality analysis is visualised in a scatter chart with a significance of the chosen topics for stakeholders shown along the vertical axis and significance for financial and business performance and outlook of the Group shown on the horizontal axis.
These evaluations are revised annually, along with a review of the list of stakeholders.
Management of material topics
For the most important topics identified in the materiality analysis, KB Group describes their main impacts on the economy and on people, but also the links to negative impacts. The analysis informs on possible directions of activities that can be developed to manage each theme and its impacts, including the development of related policies and commitments. It also provides a basis for evaluating the effectiveness of the activities undertaken and for reporting.
2022 Materiality analysis outcome and justification
Among the topics significant for stakeholders and prospects of Komerční banka, the following five topics ranked as the most material:
1) Data security - The category addresses management of risks related to collection, retention, and use of sensitive, confidential, and/or proprietary client or user data. It includes social issues that may arise from incidents such as data breaches in which personally identifiable information (PII) and other user or client data may be exposed. It addresses a company’s strategy, policies, and practices related to IT infrastructure, staff training, record keeping, cooperation with law enforcement, and other mechanisms used to ensure security of client or user data. Trust and credibility are foundations of banking, banks are guardians of valuable data on their clients, other business partners and own operations. Weakened trust in ability of a financial institution to keep its data safe can have profound implications for reputation and competitiveness of such bank or financial group.
2) Digitalisation – The recent wave of innovation in the financial services industry based on digitalisation is bringing a broad range of challenges and opportunities characterised by (a) evolving client needs – with emphasis on reliability, trust, and partnership with clients; a need for simple and fast but personalised solutions accessible anywhere and anytime; (b) changing competitive landscape – with considerable pressure on profit margins, disruption caused by fintech and neobanks, scale as a requisite for efficiency; and (c) technological revolution – transforming legacy banking systems, changing client expectations, new development practices and ways of working and analysing data, big leaps in productivity, strengthening the role of technology providers across industries;
3) Energy transition - The category addresses impacts associated with energy transition. For a financial company, it comprises risks and opportunities related to the process of energy transition for its clients and the economy as a whole. This structural change of the energy system has a potential to determine long-term prosperity, resilience and sustainability of the whole economies or even regional blocks, such as the European Union. It involves building a capacity to evaluate and finance diverse projects and organisations influenced by the changes regarding energy supply and consumption. Furthermore, it addresses the company’s management of energy efficiency and intensity, energy mix, as well as grid reliance.
4) Business model resilience - The category addresses an industry’s capacity to manage risks and opportunities associated with incorporating social, environmental, and political transitions into long-term business model planning. This includes responsiveness to the transition to a low-carbon and climate-constrained economy, as well as growth and creation of new markets among unserved and underserved socio-economic populations. The category highlights industries in which evolving environmental and social realities may challenge companies to fundamentally adapt or may put their business models at risk. In financial services industry, the landscape in Europe is changing, partly due to disruptive digital innovation and the threat of competition from both banks and non-banks. Banks must therefore establish their path to sustainable and viable business model to remain in the market, and the winners must ensure their model can sustain an increased volume of business. Next to substantial market pressure, banks must also prepare for intensifying supervisory dialogues on topics such as profitability, automation and digitalisation, risk management frameworks and controlled transition following banks’ consolidation.
5) Management of the legal and regulatory environment - The category addresses a company’s approach to engaging with regulators in cases where conflicting corporate and public interests may have the potential for long-term adverse direct or indirect environmental and social impacts. The category addresses a company’s level of reliance upon regulatory policy or monetary incentives (such as subsidies and taxes), actions to influence industry policy (such as through lobbying), overall reliance on a favourable regulatory environment for business competitiveness, and ability to comply with relevant regulations. It may relate to the alignment of management and investor views of regulatory engagement and compliance at large. Financial institutions must also stay ready for intense supervisory and policy dialogues on topics such as profitability, equipment with capital, automation, digitalisation, and risk management frameworks, even as banks have been increasingly mandated with ensuring certain public responsibilities, including in the areas of preventing financial crime, consumer protection, and financial stability.