“In the absence of a static and obligated methodology of Stakeholder Engagement companies have great room to innovate, stand out and create value thanks to this participatory process, required by current legislation.”
Laura Basconi
Chief Climate Change & Sustainability Officer, AWorld
Before even proceeding with the actual sustainability reporting, it is necessary to make a fundamental step: engaging their stakeholders, that is, all those who “hold an interest” in the business of the company. This process is a key and preliminary element of every good practice of sustainability reporting; so much that the Corporate Sustainability Reporting Directive (CSRD), as it was in the Non-Financial Reporting Directive (NFRD), considers it essential to extend the decision-making process to the other subjects that the company considers important (CSRD requirements, ESRS 2).
Stakeholders, which are employees, consumers, suppliers, investors, non-governmental organizations, or other secondary stakeholders, are the main users of the information disclosed in the annual financial statements of companies and that is why they must be taken in consideration in the process of drafting of the same.
But, what is meant exactly by the term stakeholder?
The definition of “stakeholders” (in Italian, “portatori d’interesse”) was formulated, for the first time, in 1963, by the Research Institute of Stanford University. The first book on the subject, written by Edward Freeman, defined a stakeholder as a subject without whom the company cannot survive.
From 1963 to now the definition of “stakeholder” has been refined by dividing stakeholders in two groups:
- Primary stakeholders, that is, those subjects, or those groups, without whom (really) the company cannot survive: such as shareholders, investors, employees, customers and suppliers;
- Secondary stakeholders are those subjects that influence or are influenced by the company, but are excluded from transactions with it and are not essential to its survival. Nevertheless, they have the power to shift public opinion in favor o against the company’s actions, so they are able to cause the company a success or a serious damage; an example of secondary stakeholders are people of the community where the company operates.
The changing external contexts and the awareness of the risks of “not acting” are increasingly strengthening the influencing power of stakeholders compared to company’s actions. By systematically engaging stakeholders, companies can build more solid relationships, improve and reach an inclusive and sustainable economic growth.
Why should a company pursue stakeholder engagement?
We often read that “a company is nothing more than its people”, therefore the values of the company must be defined by its people. The value scale that characterizes the company is not based, indeed, only on the recognition process of its founders’driver value, but is a community work, where the recognition of the values of those who make up the company in all its parts, then also determines its market and reputational value. Stakeholder engagement, therefore, allows to analyze and understand the expectations of the different stakeholders and to identify the sustainability issues more in line with company values. Promoting stakeholder engagement practices increases transparency and strengthens trust, improving the company’s credibility. In addition, through a dialog with stakeholders, the company can anticipate and mitigate potential risks and align its sustainability strategies with all the expectations, both internal (e.g., employees), and external (e.g., consumers).
This kind of approach is not only useful to satisfy the regulation requirements clearly reported in CSRD, in one of the two fundamental ESRS (ESRS 2 – Disclosure requirement SBM-2 and IRO-1, 53b (iii) Disclosure Requirement), but provides also valuable feedback, for the continuous improvement of sustainability practices.
The best example is the creation of the materiality matrix, defined in CSRD as “double materiality”, where it is necessary to take into account themes materiality, both on the top management, and on all the other interested stakeholders sides.
How to make an effective stakeholder engagement?
Since a proper stakeholders engagement transforms reporting from a mere one-way communication to an interactive and meaningful process, it is very important to make that using the right techniques. Generally, the activities to be implemented, on stakeholder engagement side, are mainly four:
- Assessing the new social, ethic and environmental needs of the stakeholders and of the markets (consumers and community where the company operates side), and, based on those, define the importance of the material themes, engaging all the relevant stakeholders
- Consulting the stakeholders in order to understand if the actions, the strategies that the company has already planned are considered adequate and sustainable;
- Collaborating with the stakeholders, in order to create new sustainable strategies and projects (co-design).
Being available to listen is an approach and vision theme that all companies are following, anyone making its steps, commensurate to the opportunities and to capabilities available.
Stakeholder engagement is usually made by the use of questionnaires or participating in engagement and dialogue webinars, that however often do not reach a large number of stakeholders.
The adoption by the company Sustainability Team of engagement tools, techniques and paths more “pop” depends on its focus on innovation, and strategic creativity aimed at a successful engagement result.
Often organizations who have undertaken a sustainability course for the longest time are the ones who first understand the need to extend participation and “decisional responsibility”, some of these companies have even set up internal Teams exclusively focused on stakeholders engagement.
Methodologies are therefore of various types, some work better than other and it is up to the company Sustainability Team making sure to succeed in collecting all (internal and external) opinions before proceeding with one-way choices. Actually, the only real contraindication is not following up what decided together. If citizens were asked, for example, for indications or ideas on investment lines on the territory, and the request was a pollution reduction (PM 2.5, 5, 10) in the atmosphere and a company would accept to do it, then in case it fails to fulfill the promise, not only the process would fall, but it would generate a big reputational and trust problem that then would only be possible to try to solve, with great effort and uncertain outcome.
This example does not mean that they do not have to engage stakeholders in decisions, if those should ask the company for actions that might not be closely related to the company’s primary objective, that is to make profit, but that instead they need to open the most transparent and bilateral dialogue possible in which a company can actually have a much bigger impact, than only “creating jobs and increasing profit”. In short: if they open to co-design and accept its results, then later they have to give substance to the “shared view” by building company foundations based on actions and behaviors, not (only) on words.
