How to Involve Stakeholders in Double Materiality Assessment
Sustainability Reporting

How to Involve Stakeholders in Double Materiality Assessment

May 24, 2024

Reporting companies are familiar with the role of stakeholder consultation in sustainability reporting. Regardless of the reporting standard being used, stakeholders play an indisputable role in identifying material impacts and are commonly included in the materiality assessment process.

Stakeholder consultation is central to fulfilling the double materiality principle in the European Sustainability Reporting Standards (ESRS). In this article, we explore the recommended approach to stakeholder engagement which aligns with the ESRS.

ESRS stipulations regarding stakeholder consultation

The ESRS’ concept of double materiality adds an additional layer of consideration to stakeholder identification. The key distinction underlying materiality in ESRS is its emphasis on outward and inward impacts. This means that the impacts to stakeholders, because of a company's operations, are as important as the impacts that the company faces from its operating environment. A company’s contributions to society and the environment must be considered alongside financial materiality, and this emphasis is where external stakeholders representing society, or the environment become crucial to the materiality assessment.

It should be noted that the ESRS does not require specific approaches to stakeholder consultation. However, stakeholder involvement is indirectly required as the ESRS states that the due diligence process informs the materiality assessment. In turn, the due diligence process is guided by two benchmarks: the OECD Due Diligence Guidance for Responsible Business Conduct and the UN Guiding Principles on Business and Human Rights, both of which stress the role of stakeholder involvement. Additionally, the ESRS regards consultation with affected stakeholders as central to materiality assessment and requires disclosure of the materiality assessment process including any form of stakeholder engagement. The ESRS stipulates that entities may consult stakeholders on actual or potential impacts but makes no mandatory provisions. However, other EU regulations such as the Corporate Sustainability Reporting Directive (CSRD) have provisions for informing stakeholders affected by social matters of sustainability reporting and to hold dialogue on the relevant information.

Prioritization of stakeholders

Not all stakeholders are equally affected by a company’s operations, nor do they bear the same significance towards financial materiality. Only relevant stakeholders should be consulted. The ESRS considers affected stakeholders as those that are positively or negatively impacted by a business activity or its relationship with the business across the value chain. Stakeholder prioritization is important to maintain relevance in reporting. During the prioritization process, the degree of impact should be an influencing factor in the degree of engagement.

Forms of engagement

There are no provisions as to the form or frequency of engagement, but companies may have in place existing channels of engagement through which information is gathered, and therefore additional or new actions to consult stakeholders to satisfy ESRS criteria are not always necessary. Generally, engagement through the following steps is sufficient:

  1. Identification of affected stakeholders and prioritizing groups by actual and potential impacts.
  2. Gathering information from stakeholders to assess and identify IROs, which may be in the form of ongoing engagement.
  3. Consulting stakeholders on the degree of impacts to validate thresholds to determine materiality.

Nature as a stakeholder group 

Material matters relating to the environment present a unique scenario - unlike human stakeholders, nature is unable to represent itself in a way that is meaningful to the materiality process. Nature does not have a voice and is therefore considered a ‘silent stakeholder’ in the context of the ESRS. In such a case, reporting organizations can only rely on proxies that may represent the best interests on behalf of natural entities. These can be authoritative sources such as scientific papers or studies, environmental impact assessments (EIAs), nature groups, or non-governmental organizations. These sources may be able to provide expertise and understanding of the nature-related impacts, risks, and opportunities (IROs) of a business activity.

Identification of silent stakeholders operates much the same as other stakeholders, by considering the aspects of nature that are more likely to be affected or that have a greater impact on the business. Companies can draw upon ongoing monitoring of aspects of nature to determineIROs and their severity, or even make a proactive evaluation of IROs by engaging independent third parties to test scenarios or by commissioning studies or EIAs.

Environmental stakeholders aside, in instances where affected communities are not able to engage effectively, companies may consult with representatives such as NGOs.


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