If your company is subject to the CSRD, the first step is to conduct a double materiality assessment. This crucial process involves determining whether a particular ESG topic is relevant in terms of its potential impact on the company's future financial situation and/or its impact on the world at large.
As this assessment is key to the whole reporting process, EFRAG, the body that prepared the European Sustainability Reporting Standards (ESRS), published draft guidance on how to conduct a materiality assessment in August 2023 and updated the guidance in October 2023.
The CSRD is a European directive that aims to promote transparency, standardisation, comparability and increased quality of environmental, social, and governance (ESG) information. The directive applies to large companies and listed SMEs operating in Europe. In short, it brings sustainability reporting up to the same level as financial reporting.
CSRD blog series: With the implementation of the CSRD fast approaching, TAUW takes you through the ins and outs of this directive and takes a deeper dive into different environmental topics and how they link to the CSRD.
In the elaborate landscape of materiality assessment, stakeholders stand as pivotal pillars. As underlined by the ESRS, stakeholders bring crucial information, perspectives, and feedback, steering the materiality process of defining which topics are relevant in terms of impacts, dependencies, risks, and opportunities.
Materiality assessment is not a one-time process but requires regular updating and therefore regular engagement with stakeholders. Furthermore, the stakeholder engagement process would miss its purpose and usefulness if it were only limited to consultation. A purely consultative process with stakeholders may allow you to identify material topics, but leveraging stakeholder knowledge, experience and perceptions, and developing partnerships where relevant, will become a tool that supports your business processes as well as the management of sustainability matters.
Visual 1 - adapted from Collective Leadership Institute (2011). Working with Stakeholders Dialogues – Key Concepts and Competencies for Achieving Common Goods, p.32
EFRAG's guidance highlights the need to identify relevant stakeholders. This process includes the following steps:
This process provides a broad picture that helps us identify relevant stakeholders. These stakeholders may be internal, such as C-level management, production site and daughter company representatives, and employees. They can also be external, including shareholders, lenders, suppliers, clients, and potentially affected communities. Several ‘silent’ stakeholders can also be relevant to your process (for example, an endangered ecosystem or species).
Identifying silent stakeholders affected by the company’s activities is crucial. To understand the actual and potential impacts on these stakeholders, companies must undertake research. This involves reviewing scientific articles, environmental impact assessments, and other pertinent resources. Proxies, which may include recognised organisations or methodologies such as carbon and water footprint analysis, habitat mapping, and soil assessment, provide a gauge for both current and potential impacts. Refinement and validation of these estimated impacts are achieved through consultation with experts or NGOs.
Within these stakeholders, the company will seek to engage with those who are affected by the sustainability issues in question. These are individuals or groups whose interests are or could be affected - positively or negatively - by the company's activities and its direct and indirect business relationships throughout its value chain. In case of doubt, stakeholders may also be consulted to determine whether they are actually affected.
Engagement manifests itself in multiple dimensions, each with its own values and influences. The guidance articulates various levels of engagement, from passive stances such as media and internet tracking to more active consultation such as focus groups, meetings, qualitative interviews, and online surveys all the way to empowered collaborations, integrating stakeholders into governance.
This spectrum gives your organisation the flexibility to design your engagement strategy, ensuring alignment with the importance and nature of the sustainability matters being navigated.
Considerable time can be saved by first evaluating the sustainability aspects highlighted in the ESRS, either internally or in collaboration with external specialists, to determine existing or potential impacts.
Based on these evaluations, selective involvement of stakeholder groups or key individuals can be initiated to gather specific insights and feedback on the company's impacts. During this phase, critical aspects such as the severity and extent of impacts can be explored with stakeholders.
Adaptability emerges as a key theme, recognising that the dynamics of stakeholder interactions are not static but evolve based on the unfolding landscapes of sustainability matters. Organisations are encouraged to be fluid in their approaches, recalibrating their strategies to align with the evolving contours of stakeholder influences and sustainability landscapes.
As your environmental consultant with decades of experience in multi-stakeholder engagement in your permitting processes, we are well placed to help you identify the relevant stakeholders and a pragmatic engagement strategy based on your current needs and adaptable to future developments.
At TAUW, we support our clients on the following aspects on their road to CSRD compliance:
With the CSRD fast approaching, there is an urgent need to start your journey towards a sustainable future and ensure that the process and reporting you follow on this journey enables you to comply with the CSRD.
We look forward to working with you to further explore this issue and streamline the process.
Want to know more about the CSRD? Click on the button below for our detailed CSRD information webpage. You will also find a useful document here with in-depth information about the new directive.
In the first blog article, we focus on the importance of soil management and its relation to CSRD compliance. We present five key takeaways that your company should keep in mind to ensure successful reporting.