How to Identify Sustainability-Related Risks and Opportunities Under UK SRS S1

Educational practitioner material. Illustrative examples and wording require adaptation and technical review.

The relevant population comprises sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects: its cash flows, access to finance or cost of capital over the short, medium or long term. The concept is broader than matters already recognised in the financial statements and broader than direct operational control. It can arise through suppliers, customers, distribution, product use and end of life, sources of finance, investments, associates, joint ventures, geography, regulation and other parts of the value chain.

A sustainability impact is not automatically a reportable financial risk or opportunity. It becomes an identification input when it creates a credible pathway to the entity’s prospects. Equally, the absence of a significant external impact does not prove there is no sustainability-related financial risk: the entity may depend on a resource, relationship, licence, workforce or market condition affected by others.

Describe how the entity creates value and generates cash. Map significant products and services, activities, assets, locations, technologies, workforce, customers, suppliers, distributors, financing relationships, investments, joint ventures and end-use or end-of-life pathways. The map should be detailed enough to reveal concentrations and dependencies but proportionate to the entity’s circumstances.

Revenue model: what customers pay for, pricing power, demand drivers and contract structures.

Operating model: critical sites, processes, technology, licences, infrastructure and outsourced activities.

Input model: commodities, energy, water, ecosystem services, specialised labour, data, intellectual property and finance.

Relationship model: suppliers, customers, workers, communities, regulators, lenders, insurers and strategic partners.

Geographic model: countries, regions, corridors and locations where exposure differs materially.

Lifecycle model: design, sourcing, manufacture, use, maintenance, recovery, disposal and legacy obligations.

Unknown value-chain origins or locations should be visible in the map. An information gap is an assessment fact, not a reason to delete that segment. Teams can use proxies, sector evidence and phased data improvement while explaining limitations and applying the reasonable-and-supportable-information principle.

UK SRS S1 explains that risks and opportunities can arise because the entity depends on resources and relationships and affects them through its activities and outputs. Consider natural, manufactured, intellectual, human, social and financial resources, whether or not recognised as accounting assets. For each business-model segment, ask what must remain available, affordable, reliable and legitimate for the entity to execute its strategy, and how the entity’s own impacts could alter those conditions.

Add conditions that can change the availability, quality, price or legitimacy of resources and relationships. Consider policy and law, market preferences, technology, physical conditions, social expectations, litigation, macroeconomic change, geopolitical factors, demographic trends and scientific evidence. Use the entity’s defined short-, medium- and long-term horizons and link them to strategic planning and capital-allocation cycles.

For every candidate, write the cause-and-effect pathway to the entity’s prospects. Avoid one-word labels such as “biodiversity risk” or “human capital opportunity”. A useful record identifies the underlying dependency, impact or external driver; the affected activity or value-chain segment; the business consequence; the financial channel; and the time horizon. Quantification can follow later, but the pathway should be specific enough for finance, risk and strategy teams to challenge.

Revenue: volume, price, product mix, customer retention, market access or licence income.

Operating costs: inputs, energy, labour, logistics, compliance, remediation or insurance.

Assets and liabilities: useful lives, impairment indicators, provisions, stranded capacity, rehabilitation or contingent exposure.

Capital expenditure and funding: adaptation, transition, innovation, acquisitions, divestment and planned funding sources.

Working capital and cash conversion: inventory buffers, supplier terms, receivables and disruption.

Access to finance and cost of capital: credit quality, covenants, ratings, investor appetite, collateral and insurance availability.

Strategic optionality: new products, resilient locations, partnerships, circular models, efficiency and service innovation.

UK SRS S1 requires the entity to use UK SRS Standards in identifying applicable risks and opportunities and to apply the sources-of-guidance requirements in paragraphs 54-55. UK SRS S2 is the primary source for climate-related risks and opportunities. For other topics, the entity should apply judgement using the prescribed sources and document which sources were considered, which were applicable, and how entity-specific information was added.

The entity must use all reasonable and supportable information available at the reporting date without undue cost or effort. Information used in the financial statements, business model, strategy and risk management is treated as available without undue cost or effort. The entity does not need an exhaustive search, but the cost-and-effort assessment is entity-specific, balances costs and user benefits and can change as capabilities improve.

Identification pathway from the business model and value chain to a controlled risk and opportunity register and materiality decision.

The risk and opportunity register is the bridge between identification, materiality, the four pillars and evidence. It should retain rejected or merged candidates so the completeness review can be reconstructed. Each record should be version-controlled and assigned to a business owner and finance partner.

A longlist is complete enough for the next stage only after independent challenge. The review should ask what the initial workshops were structurally likely to miss.

Coverage: every material business line, geography, value-chain stage and major relationship has been considered.

Time: near-term operational issues and slower strategic or systemic changes are both represented.

Direction: opportunities and upside pathways have not been reduced to a list of existing sustainability initiatives.

Transmission: dependencies and impacts have been traced to the entity, including indirect feedback through business partners.

Concentration: location, commodity, customer, supplier, technology and financing concentrations have been challenged.

Aggregation: several small risks that could create the same disruption have been considered together.

External view: law, market, science, lenders, insurers, customers and credible sector evidence have been considered.

Contrary evidence: the team has looked for evidence that weakens, not only confirms, the proposed pathway.

Known unknowns: missing locations, supplier origins, methodologies and data have owners and improvement actions.

Governance: rejected candidates and changes are visible to the approving body.

UK SRS S1 does not require a separate risk-management universe if the entity’s existing processes can capture sustainability-related risks and opportunities adequately. Integration should, however, preserve the wider value-chain scope, longer horizons, opportunity identification and investor-information objective. Traditional enterprise risk systems can underrepresent emerging, low-probability, chronic or indirect pathways if their thresholds are designed only for near-term operational loss.

Teaching point: the identification conclusion comes from the dependency and financial pathway. The entity does not need perfect farm-level data before recognising that a supportable candidate requires assessment.

Next: UK SRS S1 Materiality Assessment - test the information identified for primary-user decisions.

Implement: How to Prepare a UK SRS S1 Report - connect the register to governance, strategy, risk management, metrics and approval.

Scope option: UK SRS S1 Climate-Only Relief - understand when the identification population may be limited for voluntary reporting.

Claim control: Can You Claim UK SRS S1 Compliance While Using Climate-Only Relief?