Stakeholder engagement for materiality

What is stakeholder engagement for materiality?

It is the part of a materiality assessment that brings in outside views and evidence: what impacts people experience or fear, which matters investors and lenders consider significant, and what the company's own data may miss. It is closely linked to due diligence, in which a company engages with affected people to identify, prevent and remedy adverse impacts, so the two processes should share information rather than run separately. See running a double materiality assessment.

Who are the stakeholders?

• Affected stakeholders: individuals or groups whose interests are or could be affected by the company's activities and business relationships, such as employees, workers in the supply chain, local communities, indigenous peoples and consumers.
• Users of sustainability statements: investors, lenders and other creditors, and others such as business partners, trade unions, civil society and governments.
• Silent stakeholders: nature, future generations and people who cannot speak for themselves, represented through scientific evidence, expert organisations and legitimate representatives.

Some groups are both: employees are affected stakeholders and may also use the report. See impact materiality.

What do the ESRS and GRI require?

ESRS 2 asks companies to describe their key stakeholders, how they engage with them, and how their interests and views are taken into account in strategy and the business model, and to describe the materiality assessment process, including how stakeholders were involved. EFRAG's implementation guidance on materiality explains that engagement is central but does not require every stakeholder to be consulted on every matter, and that existing processes can be used. GRI 2-29 asks for the approach to stakeholder engagement, and GRI 3 expects companies to engage relevant stakeholders and experts when identifying and assessing impacts. IFRS S1 focuses on investors and does not require broader engagement. See ESRS 2 general disclosures and the GRI universal standards.

Stakeholder engagement in practice: a food company's assessment

A food company plans engagement for its double materiality assessment, choosing a method for each group and recording what it changed.

The farmer interviews, run through an NGO partner so that farmers could speak freely, revealed that falling yields from drought and low prices were pushing incomes below living levels, an impact the company's internal workshop had not rated. It became a new material topic under value chain workers, with a target on living income. The consumer survey confirmed packaging as a concern but did not change its severity, which rests on waste data. The ecologist's review, standing in for nature, raised the rating of water use at two plants in stressed basins. See financial materiality for how the investor interviews fed the financial side.

Which engagement methods work best?

Interviews and focus groups give depth on severe or complex impacts; surveys give breadth on widely felt matters; workshops help internal and external experts test ratings; grievance data, audit findings and customer complaints show impacts as they happen; and desk research on peers, NGOs, media and regulators fills gaps. For vulnerable groups, trusted intermediaries such as NGOs or worker representatives often produce more honest answers than direct contact by the buyer.

How can a company show engagement was meaningful?

Record who was engaged, how, when and what they said; show how their input changed the assessment; report back to those engaged; and explain any groups not reached and why. The AA1000 AccountAbility Principles of inclusivity, materiality, responsiveness and impact are a common benchmark. Avoid treating survey votes as the materiality result: how many people rate a topic as important says little about the severity of an impact, which rests on evidence of scale, scope and remediability. See materiality thresholds and scoring.

How often is stakeholder engagement needed?

Engagement through due diligence, grievance channels and worker dialogue is continuous. A full engagement exercise for the materiality assessment is often run every few years, with annual updates that draw on ongoing channels and on changes in the business, its value chain or its context, since the assessment should be reviewed each reporting period. A major acquisition, a new market or a serious incident is a reason to engage again sooner. See double materiality explained.

This guide is general information. It is not tax or legal advice for your situation.