Harnessing stakeholder power in ESRS double materiality assessments

Harnessing stakeholder power in ESRS double materiality assessments

Compliance with the European Sustainability Reporting Standards (ESRS) necessitates that companies initially carry out a double materiality assessment. This process helps to determine the scope and content of their data collection and reporting. Position Green has outlined the indispensable part that stakeholders perform in this materiality assessment procedure.

The report states that stakeholder involvement is a vital component of the materiality assessment process, as defined in the draft ESRS 1 General requirements released by EFRAG in November 2022. They provide crucial information for companies to pinpoint and evaluate material impacts, risks, and opportunities.

Interestingly, businesses are required to reveal their engagement methods with stakeholders in the materiality assessment process to grasp potential impacts.

The ESRS differentiates two primary groups of stakeholders for consideration in the materiality assessment: affected stakeholders and users of sustainability statements.

Affected stakeholders encompass individuals or groups who may experience either positive or negative effects due to a company’s activities and direct or indirect business relationships across its value chain. This group includes employees, suppliers, consumers, customers, end-users, local communities, vulnerable groups, and authorities (including regulators, supervisors, and central banks). Moreover, nature is acknowledged as an affected yet silent stakeholder in this process.

The users of sustainability statements are primarily users of general-purpose financial reporting (like existing and potential investors, lenders and other creditors, including asset managers, credit institutions, and insurance undertakings) as well as other users including business partners, trade unions and social partners, civil society and non-governmental organisations, governments, analysts, and academics. It’s crucial to note that these groups are not exhaustive, and stakeholders may not be confined to just one group.

The materiality assessment is influenced by dialogue with affected stakeholders, as per the ESRS. However, there’s no specific guidance on how companies should execute this.

Drawing on its experience, Position Green recommends a multi-step approach. Start with stakeholder interviews, roundtables or surveys to collect their insights. If direct engagement isn’t feasible, consult with internal or external experts familiar with the stakeholders. Existing assessments like human rights saliency assessments can be useful, as well as desktop research when assessing impacts related to authorities.

Engagement with nature as a silent stakeholder necessitates a different strategy. The ESRS suggests using publicly accessible tools, such as the WWF Water Risk Filter, for pertinent data. Consulting relevant experts on environmental impacts can also be beneficial.

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