Stakeholder engagement in a nutshell

Stakeholders are those parties who affect and/or are affected by a company’s decisions and actions. They are grouped into two ‘groups’: internal stakeholders that can directly influence the company from the inside (employees, senior management, and Board Members) and external stakeholders that influence the company from the outside (investors, customers, suppliers, local communities, public organizations, NGOs, research partners etc.).

Stakeholder engagement is the process by which companies engage with their stakeholders toward a desired outcome. This outcome can range from making incremental changes to operational processes to making structural changes in the organizational strategy. The engagement itself can take different forms such as having discussions with local communities to revise infrastructures, setting targets for senior management for a better ESG performance, developing partnerships with other industry players to advance in circular economy topics, but also any other types of exchanges with the parties mentioned above.

Stakeholder engagement as a key to accelerating an organization’s ESG performance

Building a strong ESG strategy

Companies are constantly guided by their stakeholders’ expectations, such as employees’ needs with regard to working conditions, customers’ expectations about products’/services’ performance, and suppliers on durable partnerships. Considering this, stakeholders also have an essential role to play to help shape the strategy in the right way. For instance, Board Members, responsible for securing their company’s future, can make arbitrage between short-term returns and long-term growth. Therefore, stakeholders must be identified, prioritized, and consulted in the design of the strategy, in such a way that it is reflective of stakeholders’ expectations and input.

Meeting ESG commitments

Once the company direction has been set, stakeholder engagement should remain a priority to execute the strategy and make sure that commitments are met. This includes collaborating with partners to reduce the impact on the whole value chain, requesting investments from the executive team, training employees on ESG topics, etc. Having engaged stakeholders from the start will ensure that the strategy is already reflective of their expectations – meaning that they will be more inclined to collaborate once they are asked.

Scaling impact

Beyond building a strong ESG strategy and meeting ESG commitments, stakeholder engagement allows scaling impact for society. Scaling can be done both through speed (accelerating change and taking action), and magnitude (amplifying the positive impacts).

The above benefits of stakeholder engagement are well explained in 6 key insights into accelerating the energy transition, an article written by the World Economic Forum (WEF). In this article, the WEF explains to an extent, how industrial-strength decarbonization requires industrial-strength collaborations and outlines three archetypal partnerships which should be built upon and regulated:

1. Collaboration between customers and suppliers (e.g. low-emission products offtake agreements, circular supply networks, value chain joint-decarbonization initiatives, etc.).
2. Collaboration among industry and cross-industry peers (e.g. CO2 handling infrastructure, low-carbon manufacturing plants, knowledge sharing for decarbonization, etc.).
3. Collaboration across a wider ecosystem of stakeholders that includes governments, policymakers, financiers, researchers, and NGOs (e.g. emission measurement standards, integrated research for low-carbon technologies, public-private partnerships, etc.).

While this example applies to decarbonization, it can be adapted for and applied to most sustainability-related topics, be it advancing human rights, promoting sustainable agriculture, steering investments towards more long-term sighted projects, and more.

Stakeholder engagement in practice: three tips for a successful approach

Materiality assessments are an excellent opportunity and the most straightforward and efficient tool to involve stakeholders in building/updating the ESG strategy. Especially double materiality assessments, which will be mandatory as of 2024 to all large European Union companies, whether listed on stock markets or not, and non-EU companies with substantial activity in the EU (with a turnover over €150 million euro in the EU) as part of the newly adopted EU Corporate Sustainability Reporting Directive (CSRD), require an active consultation of affected stakeholders to identify and assess actual and potential negative impacts, and build the ESG strategy from there.

This was well illustrated by Arkema in its most recent materiality assessment, during which the company seized an opportunity for constructive dialogue with stakeholders as part of the process of updating its ESG strategy. Below we summarize three tips for successfully engaging stakeholders and accelerating ESG performance through the process of a materiality assessment, and include some best practice examples from Arkema to make it more practical.

1. Understand who your stakeholders are

As a starting point, it is essential to understand who the company’s stakeholders are, and how they impact and are impacted by the company’s activities. Stakeholders should also be prioritized based on different factors for a more effective approach, for instance using the stakeholder salience model.

Example in practice: Considering its potential ESG risks and opportunities, Arkema identified different stakeholder groups to be involved in the research including customers, employees, investors, local communities, public organizations, suppliers, and research partners. The company also considered the complexities of its business environment and decided to consult internal and external stakeholders across the different business lines and regions in which the group operates.

2. Involve the stakeholders in building and/or updating the ESG strategy

Materiality assessments require an active consultation of stakeholders to identify and prioritize topics that are material for a company and from there, build/update the ESG strategy.

Example in practice: Arkema invited a selection of its key stakeholders to participate in the materiality assessment to update its ESG strategy. Tools used in this regard included interviews, workshops, desk research, and surveys.

It is wise to combine several research methods as Arkema did to leverage their different advantages. For instance, workshops with internal stakeholders are useful to confront different viewpoints, external stakeholder panels can facilitate best practice sharing, interviews help explore more in-depth specific topics, and desk research assists in getting an overall organizational perspective.

3. Develop an approach specific to each stakeholder group

Based on the feedback received during the stakeholder engagement sessions, it is important to develop an approach specific to each stakeholder group to activate the efforts of improving ESG performance.

Example in practice: The approach will widely differ based on the results of the exercise and the stakeholders concerned but overall, some ideas to develop such an approach include:

• Following up: Thanking stakeholders and providing feedback/next steps, communicating the win-wins, and inviting stakeholders to activation workshops to identify concrete solutions to the issues identified.
• Taking action: Joining industry coalitions with peers and industry partners, following up in business reviews with suppliers/customers, and educating where knowledge gaps have been identified.
• Making it happen: Setting (and revising) quantified targets (and linking them to incentives where appropriate), supporting the stakeholders in their actions, and monitoring performance where needed.

For more detail on this, insights, and practical help to implementation these tips, the download at the top of the article outlines how materiality assessments can be used towards an effective stakeholder engagement process.

Ready to leverage your organization’s stakeholder involvement?

If you would like to know more about materiality or discover how your organization can better engage your stakeholders to build a winning sustainability strategy and accelerate your organization’s ESG performance then get in touch with Johana Schlotterd at johana@finchandbeak.com or call  +31 6 28 02 18 80 to discuss how Finch & Beak can support you.

^{Photo by Mitchell Luo on Unsplash}