Stakeholder engagement is a pivotal aspect of the EU’s Corporate Sustainability Reporting Directive (CSRD). It is essential to recognise that a corporate sustainability manager, or the person in charge of CSRD reporting, will achieve greater success by reaching out to experienced and knowledgeable stakeholders and by collaborating closely with everyone involved in the process. The success of the CSRD Double Materiality Assessment and Sustainability Strategy hinges on inputs from stakeholders and internal experts.
However, without sufficient understanding, stakeholder engagement can become time-consuming and lead to unsuccessful outcomes. Thus, grasping the legal requirements and gaining insights from experienced professionals is crucial. This article is designed to give you a deep dive into mastering stakeholder engagement within the framework of CSRD.
In this article, you will learn about the following:
- What Are Stakeholders and Stakeholder Engagement?
- Double Materiality Assessment: A Quick Reminder
- Why is Stakeholder Engagement Important in the Double Materiality Assessment?
- Is Stakeholder Engagement in the Double Materiality Assessment Required by the Directive?
- How to Plan and Execute Stakeholder Engagement in the Double Materiality Assessment
- What is the Difference Between Stakeholders and Internal Experts?
- Stakeholder Engagement Beyond the Double Materiality Assessment
- Stakeholder Engagment in the CSRD: 6 Key recommendations
- Greenomy to Get Started on ESG Reporting
Defining Stakeholders and Stakeholder Engagement
Stakeholders are individuals or groups who can influence or be influenced by an undertaking’s actions, strategies, and policies. For CSRD, typical stakeholder categories include employees, suppliers, consumers, local communities, and public authorities, including regulators, supervisors and central banks.
The European Sustainability Reporting Standards (ESRS), the base of the CSRD reporting requirements, identify two types of relevant stakeholders:
- Affected Stakeholders: Individuals or groups whose interests are influenced by the undertaking’s activities, such as employees, suppliers, and customers.
- Users of Sustainability Statements: Individuals or entities that rely on the information within the Sustainability Statement to make decisions, including investors, lenders, asset managers, credit institutions, and others.
Nature can be regarded as a silent stakeholder. In this context, environmental experts or relevant NGOs can be engaged.
Stakeholder Engagement refers to the process by which an organisation involves these individuals or groups in its decision-making processes. In the context of CSRD, stakeholders play a critical role in the Double Materiality Assessment (DMA). This assessment is foundational to CSRD, determining the specific information that an organisation needs to disclose in a CSRD report.
Double Materiality Assessment: A Quick Reminder
The main aim of the CSRD’s Double Materiality Assessment (DMA) is to allow undertakings to prioritise ESG topics that are important for their specific business case, value chain, and context. Starting from a list of potentially material ESG topics (available in the ESRS), an undertaking needs to evaluate which are their relevant sustainability topics from two perspectives:
- Impact Materiality: Assessing the impacts generated on the environment or society related to the sustainability topic.
- Financial Materiality: Understanding if there are corporate financial opportunities or risks related to the topic.
Based on the outcomes of the Double Materiality Assessment, an undertaking identifies the different disclosure requirements and data points it needs to report on. The Double Materiality Assessment is a mandatory step before developing a CSRD report.
Read more about the DMA
Double Materiality and its Implications for CSRD Reporting
How to Conduct a Double Materiality Assessment in 6 Steps
How to Identify Impacts, Risks, and Opportunities (IROs) for CSRD Reporting
Why is Stakeholder Engagement Important in the Double Materiality Assessment?
Engaging stakeholders ensures a robust DMA, providing insights into impacts, risks and opportunities (IROs) and enhancing the quality, objectivity, and credibility of the assessment. Performing a DMA requires knowledge about multiple sustainability topics, a deep understanding of the functioning of the undertaking in its various departments, and expertise in the sector and context in which the undertaking operates.
Additionally, the concepts of ESG and in particular the legal framework of the CSRD are relatively new and complex, with a steep learning curve for all involved. Therefore, the project lead of the DMA needs to reach out to internal experts and stakeholders. Their input will help provide key insights and ensure a smooth workflow, avoiding potential pitfalls.
According to a recent study by EFRAG, approximately 70% of the interviewed undertakings use an objective evidence-based approach to DMA, combining data sources with inputs from internal experts and stakeholders.
Is Stakeholder Engagement in the DMA Required by the Directive?
The CSRD and ESRS highlight stakeholder engagement as central but not mandatory to the DMA. However, while the ESRS do not prescribe specific behaviors, they do require companies to be transparent about their consultations with affected stakeholders in the CSRD report. The undertaking is required to disclose whether and how stakeholders are consulted in the materiality assessment process to identify and assess its impacts and understand how they may be affected by the undertakings' activities and decisions.
How to Plan and Execute Stakeholder Engagement in the DMA in 9 Steps
Careful planning makes up for most of the success of a stakeholder engagement. There are nine simple steps that can be applied when organising stakeholder engagement for the DMA. Based on Greenomy’s experience advising companies across various sectors, we recommend to start planning two months before engaging with stakeholders.
However, bear in mind that no project is perfect. Processes and timing may need to be adapted as you proceed with the project and may vary depending on your company’s size and activities.
1. Planning Stakeholder Engagement Timing (two months prior)
According to the Materiality Assessment Implementation Guidance published by EFRAG, engagement is not required in each of the DMA steps. Stakeholders can contribute in the definition and scoring of impacts, risks, and opportunities (IROs) for each sustainability matter. They can provide specific context and evidence on how they are affected, where major problem areas and strengths lie and what are their expectations related to sustainability.
For instance, the engagement of a strategic supplier can provide insights on impacts and financial risks and opportunities in the supply chain. An investor may guide the undertaking in prioritising certain sustainability matters from a financial perspective.
In this context, there are two possible approaches: engagement outcome can be used to create a first draft of impacts, risks, and opportunities or you can double-check an internally created draft.
The questions to be addressed are:
- Do I want to gather inputs from Stakeholder Engagement prior to creating the first list of impacts, risks, and opportunities, or
- Do I want to double-check my internally sourced outcomes with stakeholders?
Both approaches are valid. Greenomy’s sustainability analysts recommend conducting preliminary research and preparing a draft of potentially material sustainability matters, including related impacts, risks, and opportunities, before engaging with stakeholders. This enables a more targeted approach and ensures that responses are more effective and relevant for the final outcome. Greenomy's methodology focuses on engaging stakeholders regarding impacts, risks, and opportunities that are on the borderline of materiality and thus carry the highest uncertainty.
2. Documenting and Reporting (two months prior)
Stakeholder engagement involves a high amount of information. Creating an engagement ledger to track names, contacts, specific topics, and responses is key for keeping track of the process and elaborate the information appropriately. As mentioned above (in the section “Is Stakeholder Engagement in the Double Materiality Assessment Required by the Directive?”) CSRD requires you to disclose transparently on whether and how stakeholders have been consulted during the DMA.
Furthermore, the assessment process will be third-party assured. An engagement register might be relevant as evidence for the applied approach and support Corporate Sustainability Managers or Project Leads in providing clear information in the CSRD report.
3. Mapping Stakeholders (two months prior)
In this step, the goal is to identify the stakeholders you want to engage with. Leveraging existing stakeholder initiatives and relationships can be an excellent starting point. If the company lacks similar experience, this could be an opportunity to analyse the context and identify key actors within the value chain and relevant communities who can provide valuable insights into potentially material sustainability matters.
To create a stakeholder map, start broadly and then narrow your focus. Begin by defining the key stakeholder categories (e.g., suppliers, employees, customers, users, investors, regulators, sectoral associations, or NGOs). For each category, identify a spokesperson or representative - this could be a specific person or organisation that can be contacted later in the process. At this stage, it is also helpful to consider which ESRS or sustainability matters might be relevant to each stakeholder, ensuring a diversified engagement covering all aspects.
4. Selecting Stakeholder Engagement Method (1.5 months prior)
The Stakeholder Engagement Method significantly impacts both the quality of the results and the time required for the engagement process. Choosing the appropriate method depends greatly on the specific circumstances of the company. Possible methods include surveys, interviews, workshops, or assemblies.
- Surveys are often the most efficient way to engage a large number of stakeholders while maintaining anonymity. They allow for easy data processing through survey platforms and help ensure objectivity. However, if the organisation is experiencing survey fatigue, due to high numbers of surveys having been sent out in the past, this could lead to potentially low response rates and this approach may not be ideal.
- Interviews, on the other hand, can be an effective method for obtaining detailed and informed responses. They help build trust with stakeholders and provide room for uncovering unexpected insights.
- Workshops are useful when interaction among stakeholders is likely to generate deeper understanding and more comprehensive insights.
- If your goal is to engage a broad range of stakeholders while also fostering collective discussion and deliberation, assemblies may be a suitable option.
Greenomy’s ESG specialists recommend starting with surveys and / or interviews as a primary approach and then eventually exploring other methods when in-depth qualitative insights are necessary. Undertaking a Double Materiality Assessment for the first time brings a range of challenges and unfamiliar concepts for a company. As a result, choosing a simple engagement method is crucial to efficiently utilise energy and resources.
5. Prioritising Stakeholders (1.5 months prior)
Stakeholder engagement can be a time-consuming process, and resources are limited. Therefore, it is crucial to focus on the most important stakeholders. Several simple criteria can be used to help prioritise stakeholders:
- Size: Larger stakeholders with significant influence or those who are heavily impacted by the company’s operations.
- ESG Maturity: Stakeholders with varying levels of ESG maturity, offering diverse perspectives.
- Stakeholder Relationship: The nature and strength of the relationship between the stakeholder and the company.
Based on Greenomy’s experience, it is advisable to cover at least consumers, employees, and suppliers. In our methodology, surveys and / interviews are organised to these three key groups. Additionally, an engagement session can be organised with specific ESG or sectoral experts (e.g., a sustainability expert from an NGO or sectoral association).
6. Planning the Engagement Content and Structure (1 month prior)
To ensure successful stakeholder engagement, it is crucial to carefully plan both the structure and content of the engagement. Gathering information about the people involved, including their responsibilities and expertise, is also beneficial. Additionally, remember that stakeholder engagement is most needed in areas where data is lacking, so concentrate your efforts on these areas of uncertainty.
A exemplary structure of engagement, applied also by Greenomy’s team of ESG specialists:
- Explanation of objective and scope of study
- Provision of brief definition of sustainability matters
- Warm-up questions: e.g. What are the main problem areas regarding ESG topics in your specific context? Where do you see space for improvement? How can our company contribute to improving the context?
- Specific question on aspects with a lack of data and entailing uncertainties: e.g. as an employee, do you feel safe in your work environment? As our supplier, do you have a solution for toxic water discharges generated during your operations?
Keep in mind that you need to adapt the content to each category and depending on the level of maturity of ESG of the stakeholder. The agenda and definitions may be sent out prior to the meeting so that the stakeholders can read the info beforehand.
7. Reaching out to the Stakeholders (three weeks prior)
When reaching out to stakeholders, it is important to craft a message that clearly communicates the purpose of the engagement, highlighting the significance of their contributions. Make sure the communication is clear and concise, providing all the necessary information to help stakeholders understand why their involvement is crucial. Building trust is essential in this process, so we highly advise to be transparent about the goals of the engagement, how their input will be used, and any subsequent actions.
This transparency assures stakeholders that their perspectives are valued and that their contributions will be handled with care and confidentiality. Additionally, offering background information or context can help stakeholders prepare effectively, ensuring they feel informed and ready to participate. When reaching out to schedule a meeting, consider offering flexible options for participation, allowing stakeholders to engage in a way that suits their schedule and preferences.
8. Running the Stakeholder Engagement
Once the engagement process is underway, it is vital to approach it with a clear structure in mind. Begin by setting the stage with an agenda that outlines the objectives and the process that will be followed, ensuring that all participants are on the same page.
Active listening plays a key role when engaging stakeholders in meetings; it is important to give stakeholders the space to share their thoughts and insights without interruption, creating an environment where they feel heard and valued. When distributing surveys, be sure to schedule reminders as well.
9. Stakeholder Engagement Follow-up (one month later)
Once you have chosen your methodology, picked the key stakeholders, performed and tracked appropriately the engagement, it is important to follow up with stakeholders, letting them know how their input will be utilised and what actions will be taken as a result. This follow-up not only reinforces the value of their participation but also keeps them informed and engaged in the process moving forward.
it is clear that stakeholder engagement is a complex and time-consuming process, often spanning several months, with the bulk of the effort focused on careful planning. As you go through the process first-hand, you will quickly realise that flexibility and adaptability are essential. There is no one-size-fits-all approach, as each stakeholder brings unique perspectives and needs. Therefore, it is crucial to continuously refine and adjust your engagement strategies to suit the specific circumstances at hand, ensuring that the process remains effective and responsive to the human element involved.
What is the Difference Between Stakeholders and Internal Experts?
There may be confusion between the roles of stakeholders and internal experts. It is key to understand the difference between these two groups to plan and perform a successful CSRD reporting and Double Materiality Assessment. They are both crucial in the processes but have different roles and responsibilities.
While stakeholders will never be directly involved in the CSRD project, only engaged through targeted approaches, internal experts may perform key tasks specific to the topics they are knowledgeable about. For example, an HR manager will be considered an internal expert on social indicators (e.g. workforce metrics) and might be tasked to fill in key metrics for reporting.
The Importance of Internal Experts
At the early stage of the CSRD project, the project lead should understand whether, who, and how to involve internal experts. Internal experts are directly involved in the DMA project due to their expertise related to specific sustainability topics.
It is highly recommended to collaborate with these people at one point in the project; ideally, throughout the whole process. Their responsibilities may include validating a draft of potential material sustainability matters, scoring their importance, and performing the stakeholder engagement. Who knows the supply chain better than the internal procurement management? Who would be better to discuss the supply chain with suppliers than a procurement employee?
Engaging these employees is also key to build common knowledge in the company on the CSRD and in general about ESG. To ensure high engagement, it is highly important to be transparent from the start about the required effort of these functions and understanding their availability. Just like with stakeholder engagement, the planning phase plays a crucial role in determining the success of a project when collaborating with experts.
Stakeholder Engagement Beyond the DMA
Stakeholder engagement may extend beyond the DMA. There are specific disclosure requirements of the CSRD that refer to stakeholder engagement independently of the DMA. The main focus here is on reporting how interests and views are considered in the undertaking’s strategy and business model, and when developing sustainability policies, actions, and targets.
Particular attention to stakeholder engagement is required in the reporting of “Own Workforce”, “Affected Community”, and “Consumer/End-user” material topics. Regarding the latter, the overall process of engaging with these groups and how this feeds the process of mitigating negative impacts needs to be explained.
Stakeholder engagement, in general, is a moment in which you open up the corporate’s walls to inputs from the outside world. It helps to challenge internal beliefs, discover problem areas, implement innovative approaches, and adapt to expectations and trends. It is important that you leverage stakeholder engagement for these multiple goals.
Implementing an Ongoing Corporate Sustainability Due Diligence
An effective way to meet stakeholder engagement disclosure requirements of the CSRD is by implementing an ongoing due diligence process based on the Corporate Sustainability Due Diligence Directive (CSDDD). This thorough investigation, mitigation, and reporting process helps identify and address adverse human rights and environmental impacts in an undertaking’s operations, subsidiaries, and value chain.
Stakeholder engagement provides valuable insights, helping to identify and address relevant issues more effectively. Insights from the due diligence process should reach top management to shape the strategy, business model, policies, actions, and targets. Outcomes of a due diligence process provide a robust basis for the DMA.
Stakeholder Engagement in the CSRD: 6 Key Recommendations
Whether integrated into a comprehensive due diligence system or used in a more straightforward approach to support double materiality, stakeholder engagement is central to the CSRD. The complexity and novelty of the directive pose significant challenges for companies. To help navigate these challenges, Greenomy’s experts offer the following key recommendations to get started with stakeholder engagement in CSRD:
- Opt for a pragmatic and efficient approach, such as gathering opinions and interests through surveys of a selected group of key stakeholders.
- Begin stakeholder engagement preparations early.
- Apply a tailored and targeted strategy for each stakeholder type.
- Remain flexible and adapt the process to meet the needs and characteristics of stakeholders.
- Involve internal experts in stakeholder engagement to leverage their knowledge.
- Leverage engagement outcomes in the DMA and when updating or developing your strategy, policies, actions and targets.
Greenomy to Get Started on ESG Reporting
Seeking assistance with your CSRD reporting? Greenomy helps you with your Stakeholder Engagement for your CSRD report. From the outset, our sustainability analysts offer advisory support to help you plan, organise, and execute your stakeholder engagement efficiently.
Collaborating with sustainability experts like Greenomy offers invaluable guidance, ensuring your organisation not only meets regulatory requirements but also utilises its sustainability reporting as a strategic asset. Book a call for further details.
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