Your Biggest Risk May Sit Outside Your Business

Approximately 4 minute read

 

Imagine an ecommerce company that takes sustainability seriously.

Its premises are powered entirely by renewable electricity.

Its own company vehicles are electric.

It has improved energy efficiency, reduced waste and significantly lowered emissions from its direct operations.

From inside the organisational boundary, things may look very good.

But now look outside.

Every day, tens of thousands of packages may leave its warehouses and travel through a network of logistics companies, distribution centres, delivery vans, trucks and subcontractors before reaching customers.

Those vehicles may not belong to the ecommerce company.

The drivers may not work for it.

The distribution centres may not be under its control.

But the ecommerce business depends on all of them.

And that creates an important question.

What happens if your business is ready for the future, but the businesses you depend on are not?

Your business does not operate in isolation

Traditional management naturally focuses on what happens inside the organisation.

That makes sense.

Management can directly influence its own employees, buildings, equipment, vehicles and operating processes.

But modern businesses operate through networks.

Suppliers provide materials.

Technology companies provide platforms.

Banks provide finance.

Utilities provide energy.

Logistics companies move products.

Contractors provide services.

Customers determine demand.

Communities provide labour, infrastructure and social legitimacy.

Natural systems provide water, energy, land and raw materials.

This means a business can have excellent internal controls while remaining exposed to weaknesses elsewhere in its value chain.

GRI 3 reflects this reality.

When determining material topics, organisations are expected to understand their activities and business relationships, including entities in the value chain and even entities beyond the first tier where relevant. They are then expected to identify actual and potential impacts across those activities and business relationships (Global Reporting Initiative, 2021).

The boundary of the company is therefore not necessarily the boundary of what matters.

Consider the ecommerce company again

Suppose our ecommerce company has achieved very low emissions from its own operations.

That is valuable progress.

But perhaps 30,000 parcels leave its distribution centres every day.

Those parcels still have to move.

Imagine that most deliveries depend on several logistics partners operating large fleets of vans and trucks.

Now consider the transition taking place in European road transport.

Current European Union rules set progressively tighter carbon dioxide standards for new cars and vans, including a 100 per cent reduction target from 2035 under the legislation currently in force. In December 2025, the European Commission proposed greater flexibility, including a 90 per cent tailpipe reduction target from 2035 with mechanisms to compensate for the remaining emissions. The proposal continued to be negotiated during 2026 (European Commission, 2026; Council of the European Union, 2026).

The precise regulatory pathway may evolve.

The direction is much clearer.

Transport fleets are moving towards considerably lower emissions and greater electrification.

That creates a business question for the ecommerce company.

Are our logistics partners ready?

A logistics partner’s transition risk can become your business risk

Suppose one of the ecommerce company’s major logistics providers operates thousands of conventional delivery vehicles.

Replacing those vehicles requires capital.

Charging infrastructure may be required.

Routes may need redesigning.

Vehicle availability and residual values may change.

Energy requirements may change.

Operating economics may change.

New technologies may require new skills.

Regulation may continue to evolve.

The logistics company has to manage that transition.

But the ecommerce company needs to understand it too.

Why?

Because if the logistics provider’s costs increase significantly, some of those costs may eventually reach the ecommerce company.

If the provider has difficulty financing fleet replacement, capacity could become constrained.

If some operators adapt faster than others, service quality or pricing could change.

If customers increasingly expect lower emission delivery, the ecommerce company’s choice of logistics provider may affect its own market proposition.

A sustainability issue within a business relationship has become a strategic issue for the company.

That is how value chains work.

Impact, risk and opportunity can be different sides of the same issue

The example also illustrates why double materiality is useful.

One perspective considers impacts.

The movement of thousands of parcels creates emissions and other environmental effects.

The second perspective considers how the same sustainability matter may affect the company financially.

Changing regulation, fuel costs, technology, fleet investment and customer expectations may create risks.

But they may also create opportunities.

An ecommerce company that identifies the transition early might work with logistics providers that are better prepared.

It might negotiate longer term arrangements.

It might offer customers lower emission delivery choices.

It might redesign packaging to reduce volume and weight.

It might consolidate deliveries.

It might reconsider distribution locations.

It might collaborate with logistics partners on technology.

It might simply start asking better questions during procurement.

The important point is that the company has time to choose.

And as we argued previously in this series:

Resilient businesses build options.

This is where enhanced materiality becomes valuable

FBRH uses the term enhanced materiality for a practical approach that builds on GRI impact materiality and the financial perspective of double materiality.

The process starts with understanding the organisation and its value chain.

It identifies actual and potential impacts.

It considers related risks, opportunities and dependencies.

It gathers evidence.

It incorporates relevant stakeholder input.

It uses expert input where appropriate.

It considers potential financial effects.

It applies professional judgement.

And critically, it presents the resulting information in a form that senior decision makers can use.

The purpose is therefore not simply to decide what should appear in a sustainability report.

The purpose is to answer a more useful question:

What does management need to understand in order to make better decisions?

Looking beyond tier 1 matters

This becomes even more important as value chains become longer and more complex.

The OECD’s Responsible Business Outlook 2026 highlights the difficulty companies face when trying to understand risks beyond their direct suppliers.

The OECD notes that supply chain disruption risk tends to increase further into the supply chain. It cites research indicating that disruption risk can be 21 per cent higher at tier 2 than tier 1 and up to 38 per cent higher by tier 3 (OECD, 2026).

That should concern senior decision makers.

Your direct supplier may appear robust.

But who supplies your supplier?

Where do critical components originate?

Which ports, transport routes or infrastructure do they depend on?

Where does energy come from?

Where are important materials sourced?

Which subcontractors actually perform the work?

The further an organisation looks into the value chain, the less visibility it may have.

Yet significant impacts and dependencies do not disappear because management cannot see them.

The risk you cannot see can still stop you

This principle applies far beyond ecommerce.

A food manufacturer may run an efficient factory but depend on agricultural products exposed to water scarcity.

A technology company may have relatively limited direct environmental impacts but depend on data centres, electricity, minerals and complex hardware supply chains.

A bank may operate energy efficient offices while financing activities with significant environmental and social impacts.

A retailer may have excellent employment practices within its own stores while sourcing products through suppliers it barely understands.

A professional services company may have limited direct emissions but depend heavily on a small number of people with specialist knowledge.

In each case, focusing only on direct operations can create a false sense of security.

Materiality should reveal dependencies

This is one reason materiality should not simply become a list of sustainability topics.

A useful materiality assessment should help management see relationships.

What does the business depend upon?

Where could significant impacts occur?

Which relationships create concentration?

What could change?

Where could disruption originate?

Which matters could affect financial performance?

Where might opportunities emerge?

Which stakeholders understand issues management cannot see?

Where is expert judgement needed?

These questions transform materiality from a reporting exercise into a management tool.

Better visibility creates better decisions

Return once more to our ecommerce company.

If management discovers in 2034 that its critical logistics partners are poorly prepared for transport transition, its options may be limited.

If it understands the exposure years earlier, it has choices.

It can engage existing providers.

It can assess alternatives.

It can alter procurement criteria.

It can diversify logistics relationships.

It can redesign delivery models.

It can investigate new technologies.

It can collaborate.

It can monitor progress.

That is resilience.

Not predicting precisely what regulation, technology or transport costs will look like years into the future.

But understanding the dependency sufficiently well to maintain options.

Sustainability information becomes decision useful

This brings us back to the purpose of sustainability information.

Its greatest value does not necessarily come from publishing more information.

Its value comes from improving understanding.

The process should move:

from disclosure

↓

to decisions

↓

to actions

↓

to value creation

Enhanced materiality contributes to that process because it helps connect sustainability information with business reality.

A significant impact may reveal a dependency.

A dependency may create a risk.

A risk may require a decision.

A decision may create an opportunity.

And management needs to see those connections.

Senior decision makers need the whole picture

This does not mean senior management needs hundreds of sustainability indicators.

The opposite may be true.

Senior decision makers need the most significant information presented clearly enough to answer:

What matters?

Why does it matter?

Where in the value chain does it occur?

What could it mean for the business and stakeholders?

What options do we have?

What decision is required?

That is where sustainability information becomes strategically useful.

Your organisational boundary is not your risk boundary

An organisation can improve everything within its direct control and still remain vulnerable.

The ecommerce company can electrify every company vehicle.

It can power every building with renewable energy.

It can minimise its operational emissions.

All of those achievements matter.

But the parcels still have to reach the customer.

And if the organisation does not understand the businesses, infrastructure, resources and relationships that make that possible, it does not fully understand its own resilience.

Your organisational boundary may define where your company ends.

It does not define where your impacts, dependencies, risks and opportunities begin.

That is why proper value chain analysis matters.

And that is why enhanced materiality should ultimately be about better decisions, not simply better reporting.

Building the capability

FBRH’s GRI Certified courses teach participants how to apply the GRI Standards in practice and how to undertake enhanced materiality.

Our approach builds on double materiality but goes further as a practical decision making methodology. It connects value chain analysis, impacts, risks, opportunities, dependencies, evidence, stakeholder and expert input, potential financial effects and professional judgement with the information senior decision makers need to act.

The objective is not simply to determine what should be reported.

It is to help organisations generate decision useful sustainability information that can contribute to resilience and lasting value for the business, stakeholders and the planet.

 

Simon Pitsillides
Simon Pitsillides is a board adviser specialising in sustainability governance, corporate reporting, strategy and stakeholder value creation. He supports boards and senior executives in strengthening governance, enhancing decision-making and integrating sustainability into long-term business strategy.
Simon is a Fellow of the Chartered Institute of Marketing (FCIM), a Fellow of the Institute of Sustainability and Environmental Professionals (FISEP), a Chartered Marketer, and holds an MBA in Marketing. He is also a GRI and ISEP Certified Trainer.
As Founder of FBRH Consultants and publisher of SustainCase, Simon combines strategic, commercial and governance expertise with extensive international experience in sustainability reporting, assurance readiness and value creation. He has worked with multinational organisations, financial institutions and public sector bodies across Europe, the Middle East and beyond.
Simon is recognised for helping boards move beyond compliance by using decision-useful sustainability information to strengthen strategy, manage risk, build stakeholder confidence and create long-term value for business, stakeholders and the planet. 

https://www.linkedin.com/in/simon-pitsillides

 

References

Council of the European Union (2026) Environment Council, 25 June 2026: CO2 emission standards for cars and vans. Brussels: Council of the European Union.

EFRAG (2024) EFRAG IG 1: Materiality Assessment Implementation Guidance. Brussels: European Financial Reporting Advisory Group.

European Commission (2026) Cars and vans: CO2 emission performance standards. Brussels: European Commission. Accessed 14 September 2026.

Global Reporting Initiative (2021) GRI 3: Material Topics 2021. Amsterdam: Global Reporting Initiative.

OECD (2026) OECD Responsible Business Outlook 2026. Paris: Organisation for Economic Co operation and Development.