As of 2024, the Corporate Sustainability Reporting Directive (CSRD) ushers in a new era of transparency for European companies. Companies subject to the CSRD must assess, through double materiality analysis, the importance of each sustainability issue for both the company and its stakeholders. This analysis is called ‘double’ as is it based on two axes and must consider both positive and negative impacts, as well as associated financial risks and opportunities. Actively involving stakeholders is crucial to understanding their own interests, position, and expertise on the materiality and prioritization of each sustainability issue. This article aims to help you identify relevant stakeholders and provide tips on how to engage them in this process.
Identifying Relevant Stakeholders and Their Importance
Not every company is impacted in the same way by sustainability issues, so it is essential to embrace the diversity of stakeholders within the company’s ecosystem to collect as much information as possible. Moreover, beyond the strictly regulatory aspect, this double materiality analysis also allows for meeting the growing expectations of stakeholders.
The importance of considering stakeholders echoes Freeman’s theory (1984), which states that businesses should consider the interests of all stakeholders, i.e. all individuals or groups affected by or capable of affecting (directly and indirectly) an organization’s actions, and not just shareholders, to achieve long-term success. The key to analyzing issues, risks, and opportunities lies in the diversity of those consulted, in the diversity of viewpoints, to capture issues as comprehensively as possible.
Internal Stakeholders
Internal stakeholders provide an insider’s perspective on the business model, operations, and day-to-day issues. Employees across different levels and departments may perceive various risks and potentially differing levels of risk, thereby offering a comprehensive view of potential ESG issues within the company. Engaging internal stakeholders also ensures step-by-step validation of the assessment, particularly the final evaluation by top management. This involvement engages them in a process of progress regarding the themes that will be disclosed.
For example, a Chief Technology Officer may highlight cybersecurity risks, while a marketing director can identify reputation or market visibility issues. A sales director understands commercial fraud risks, while a human resources director focuses on employee well-being and retention issues. A Chief Financial Officer comprehends financial market risks, while a Customer Success Manager knows the significance of customer feedback. Operational staff have practical knowledge of day-to-day operations and can provide valuable information on working conditions and resource use.
External Stakeholders
External stakeholders, including clients, partners, subcontractors, suppliers, competitors, potential investors, banks, NGOs, and regulators, offer unique perspectives on the company, often identifying critical risks overlooked internally.
- Partners, subcontractors, and suppliers because they have very specific constraints and allow us to understand the interests and risks of the entire upstream value chain.
- Customers and potential investors as their needs and expectations evolve and understand the competitive advantages and value creation of one company over another.
- NGOs, with their expertise in ESG issues, play a significant role in enriching issue analysis. Their external, critical viewpoint enhances the credibility of internal assessments, demonstrating the company’s responsiveness to concerns raised by influential independent actors.
- Local authorities hold a deep understanding of regulations and legal requirements, contributing valuable insights to identify compliance and regulatory risks. Their expertise in systemic risks within specific sectors or regions aids in identifying long-term ESG issues.
- ESG certifying organizations utilize international standards to assess risks and performance, providing insights into the company’s alignment with these standards and pinpointing areas for improvement. Moreover, their ratings bolster the company’s ESG credibility.
- Competitors as they are exposed to the same issue and may have expertise in the market, or in a particular segment or country in which it is established.
Lastly, it is worth explaining that there are ongoing debates regarding the inclusion of Future Generations as a key stakeholder.
Interviewing both internal and external stakeholders serves not only compliance purposes but also fosters dialogue. The CSRD compliance journey presents an opportunity for meaningful engagement with stakeholders, raising awareness of sustainability issues, showcasing the company’s efforts, and fostering partnerships in addressing shared issues. To ensure the establishment of this dialogue and the involvement of all essential stakeholders, we offer some practical application advice in the following.
How to Interview and Engage Stakeholders
-
Identifying Stakeholders
Map out the various stakeholders and prioritize them according to their importance. Identify those affected by sustainability issues and the specific topics that concern each stakeholder. Once the list of all stakeholders is established and prioritized according to their importance, the next step is to identify the stakeholders potentially affected by sustainability issues. Finally, the identification phase concludes with identifying the issues and topics that concern each stakeholder.
-
Selecting the Format and Preparing Surveys
Choose appropriate methods for engaging stakeholders, such as oral interviews, collective workshops, or online questionnaires. Through this survey, you will identify the significant issues from the perspective of each identified stakeholder. Tailor questions to cover key CSR topics and facilitate the ranking of their importance. A piece of advice: limit the number of open-ended questions sent to many people and prioritize sharp questions with a predefined list of response options to determine the importance of the issue (ex: scale from 1 to 5). This will enable you to consolidate this data afterward!
-
Establishing Contact
Initiate contact with stakeholders, explaining the reason for reaching out and emphasizing their significance within the process. While some stakeholders may already be well informed of CSRD issues, others may not. Therefore, it is essential to onboard all stakeholders, bearing in mind the varying levels of maturity regarding the subject matter.
-
Processing and Weighting Results
Centralize and consolidate responses, weighting them by major issue categories to obtain actionable results. The weighting of results should be done by major issues categories, regardless of the number of respondents within stakeholder categories.
-
Utilizing the Results
Analyze the data to identify positive and negative impacts. Additionally, explore financial risks, and opportunities in order of importance according to your stakeholders. This analysis can be enriched by international frameworks such as sectoral issues outlined by SASB, benchmarks, as well as existing documentation within the company.
-
Considering The Results of The Double Materiality Assessment
Ensure top management validation of analysis outcomes, as the strategic and auditable nature of double materiality analysis demands their approval. Publishing the consolidated results of this survey in the sustainability report ensures the transparency of the process. It also engages stakeholders and demonstrates to them that they play a significant role in the compliance process.
Sustaining and Nurturing Stakeholders Dialogue Over Time
Long-term stakeholder engagement is crucial for tracking commitments, growing positive influence, and enhancing innovation. Strategies to achieve this include:
- Extending stakeholder networks
- Establishing governance structures
- Organizing collaborative events
- Creating a Critical Friend Committee
In conclusion, engaging stakeholders in the CSRD compliance journey is a strategic imperative for any company subject to the regulation. While the sustainability report mandated by the CSRD serves regulatory purposes and caters to investor needs, it represents much more. It emerges as a pivotal tool for fostering dialogue, raising awareness about CSR issues, realigning priorities, and assessing organizational maturity. Beyond its regulatory mandate, the sustainability report stands as a multifaceted tool for communication and transparency, addressing the needs of all stakeholders involved.
Cority & CSRD
Cority can help your organization focus on the essentials. We assist many corporate clients with sustainability advisory and reporting software implementation, from large listed organizations to small companies new to this process.
We know that embedding the right software needs subject-matter expertise to make sure time and resources are used most effectively. Cority’s award-winning Sustainability Performance Management software integrates carbon management and global standards with pre-defined European Sustainability Reporting Standards (ESRS) data aligned with the EU Corporate Sustainability Reporting Directive (CSRD) requirements.
This software + advisory approach to CSRD ensures that customers are prepared for CSRD and beyond. Contact us to learn more about our customized support based on the challenges and the level of maturity of your company.
