In a sustainability-driven business environment, companies need to align their strategies not only with financial objectives, but also with environmental and social responsibility requirements, such as those set out in the European Corporate Sustainability Reporting Directive (CSRD). A key element in this context is the dual materiality analysis, a process by which companies assess the social, environmental and economic impacts of their activities on various stakeholder groups.

To guide this process, European Financial Reporting Advisory Group (EFRAG) has published a guide detailed guidance on the role of stakeholders in the dual materiality assessment process. The EFRAG document clarifies the ways in which companies can consult and involve stakeholders, emphasising their importance in sustainability reporting.

What are stakeholders and why are they important in analysing dual materiality?

Stakeholders are individuals or groups that can influence or be affected by a company's activities. They are categorised into two main categories: affected stakeholders and users of sustainability statements. Affected stakeholders include individuals and communities that directly feel the impact of the company's activities, while users of sustainability statements refer to entities interested in sustainability reporting for financial decision making - investors, banks, business partners, NGOs and others.

Stakeholders are crucial for analysing the dual materiality, which covers both impact materiality - how the company affects society and the environment - and financial materiality - how these issues influence economic performance. Stakeholder engagement provides companies with a valuable external perspective, helping them to identify and prioritise those sustainability issues with the greatest impact.

Identify, analyse and engage with stakeholders

The process of involving stakeholders in analysing materiality involves several essential steps:

1. Stakeholder mapping: identifying and segmenting individuals and groups that have an interest in the company's activities - employees, local communities, trade unions, NGOs, etc.
2. Stakeholder relevance assessment and prioritisation: After identification, the company analyses the impact of stakeholders on its activities and vice versa, prioritising those most influential and affected.
3. Stakeholder consultation: Ongoing dialogue with stakeholders, including regular feedback, allows the company to stay abreast of relevant issues, such as occupational safety or environmental issues, and gain a clear perspective on the concerns of these groups.
4. Integrate feedback into strategic decisions: Companies can incorporate stakeholder perspectives to inform the relevance of specific sustainability issues and improve decision-making.

CSRD requirements for stakeholder analysis and involvement in dual materiality assessment

The CSR Directive and the European Sustainability Reporting Standards (ESRS) require transparency in consulting affected stakeholders. Although ESRS does not oblige companies to follow a specific methodology, they must disclose how they assess stakeholder impacts. In line with EFRAG guidance, companies are encouraged to rely on international due diligence processes such as OECD Guidelines for Multinationals and UN Guiding Principles on Human Rightsto support impact assessment and support transparency.

In addition, the CSRD foresees the need to work with employee representatives in the context of social dialogue to ensure that relevant sustainability issues are informed and validated, including by involving stakeholders in environmental and social impact assessment.

Benefits of involving stakeholders in dual materiality analysis and CSRD reporting

Integrating stakeholder input into the materiality assessment and CSRD reporting process brings several benefits:

1. Improved transparency and credibility: Stakeholder engagement contributes to more transparent and credible reporting, promoting a realistic picture of the company's impact.
2. Identifying risks and opportunities: Working with stakeholders can reveal unknown risks and opportunities, helping the company to adapt its strategies and maximise long-term value.
3. Alignment with international standards: Following due diligence guidelines and involving stakeholders in decision-making processes ensures better compliance with international standards and contributes to the company's reputation.
4. Enhancing financial performance: Stakeholder involvement in identifying materiality of impact can support not only non-financial, but also economic performance by improving the relationship with investors and financial partners.
5. Positive reputation: Companies that demonstrate real engagement with stakeholders and respond to their concerns can gain a positive image, strengthening their position in the eyes of the public and partners.

Stakeholders are central to the process of analysing dual materiality and complying with CSRD requirements. Their involvement brings a valuable perspective to sustainability assessment and reporting, making this process an indispensable component of a company's business strategy.