Mastering Materiality Part 4: Which stakeholders should you include in your Materiality Assessment?

So you’ve bitten the materiality bullet, you’re ready to engage stakeholders, where do you go next? With so many individuals and diverse stakeholder groups to choose from, it can be hard to know who to include in your Materiality Assessment.

The short answer is there is no single right answer! Every organization is different, and the Materiality Assessment process needs to be specific to each organization and the needs of its stakeholders. That said, there are some useful rules of thumb that can be applied.

For most organizations, your stakeholders will fall into two main categories. 

1.    Internal stakeholders: Board, Senior Management, Employees
2.    External stakeholders: Investors, Suppliers, Channel Partners, Customers, Community

Each group and individual bring their own unique lens to the materiality process.

Why getting it right matters

Stakeholder groups denote clusters of people who tend to share a common interest in relation to your organization and its impact on them. Of course there will be some divergence of opinion, but the broad perspective within each group is likely to be similar—i.e. investors generally share a core interest in governance, strategy, risk management and financial performance, while local community (depending on industry) may focus more on job creation, local economy, noise or pollution, and philanthropic giving. A strong ESG Materiality Assessment requires an inclusive and balanced range of stakeholder perspectives.

Weighting too heavily towards any particular stakeholder group when conducting your Materiality Assessment or selecting too many or too few stakeholders will impact the results.

Without a good balance of stakeholder perspectives, your assessment won’t capture a full 360 degree view of your organization's ESG issues and impacts. This can lead to blind spots and missing important risks or opportunities that could affect your organization’s financial performance and reputation.

If too few stakeholders are engaged, your assessment may be limited in scope and representativeness, leading to a lack of stakeholder buy-in and trust, with possible harm to reputation and relationships.

But cast your stakeholder net too wide, and your assessment can become overly complex, time-consuming and expensive, impacting the efficiency of the process. This can lead to lack of focus and direction, making it difficult to prioritize ESG issues and develop a timely and coherent strategy for your organization.

By carefully considering the appropriate number and range of stakeholder groups to involve in your ESG Materiality Assessment, you can find a sweet spot between making sure diverse perspectives are adequately represented, and keeping the process streamlined and effective.
 

Setting the standard for stakeholder engagement

When it comes to stakeholder engagement, there are two main recognized frameworks, the GRI (formerly Global Reporting Initiative) Standards and the AA1000 Stakeholder Engagement Standard.

The GRI (Global Reporting Initiative) Standards provide a framework for organizations to report on sustainability performance, a key component of which is stakeholder engagement. Under GRI, organizations must report on their stakeholder engagement practices, including identification of key stakeholder groups, the methods used to engage with them, and key issues raised. 

The GRI Standards requires your organization to demonstrate the connection between strategy, reporting and material topics, namely the sustainability issues identified as most significant to your business and stakeholders. The Ansarada Materiality Assessment has been built in alignment with the GRI Standards to make reporting easier and more useful to stakeholder audiences. GRI alignment helps to ensure that your stakeholder engagement and materiality assessment processes are comprehensive, transparent, and aligned with industry leading practices. A valuable feature of the final results report is detailed insights on which stakeholders have been consulted, what topics they care most about, and how your organization’s priorities align with each stakeholder group’s priorities and expectations.

Another recognized framework is the AA1000 Stakeholder Engagement Standard. It provides guidance on how organizations can effectively engage with their stakeholders, based on three core principles: inclusivity, materiality, and responsiveness. 

Inclusivity addresses the importance of engaging with a diverse range of stakeholders, including those who may be marginalized or underrepresented. Materiality involves identifying the issues that are most important to stakeholders and that have the greatest impact on the organization's sustainability performance. Responsiveness requires organizations to use stakeholder feedback to inform decision-making and communicate transparently about the actions they take as a result. 

Keeping these established principles in mind will help you ensure that a variety of opinions have been heard, that your understanding of material issues is sufficiently complete, and that your final report presents a holistic view of your organization’s performance on the ESG issues that matter most to you and your stakeholders. 
 

Questions to consider Which stakeholders are most affected or impacted by the ESG risks and opportunities arising from my organization? Who are the stakeholders with the most influence over my organization's ESG performance?  Who are the stakeholders with the most interest in my organization's ESG performance?

Good practice tips and guidelines

While it is up to every organization to decide which and how many stakeholder groups to include, here are some basic guidelines to help set you up for success.

• Ensure you have stakeholder representation across each group, to avoid incompleteness. For the best result, aim for an equal balance of stakeholders across each group (and subgroup, if you choose to break these down further). Remember that over or underrepresentation of a single stakeholder group can skew your results. Don’t be afraid to engage with stakeholders that may have dissenting views, these are the stakeholders you may learn the most from, and being able to respond and adapt to such stakeholders can yield greater levels of trust and accountability.
• Defining key stakeholders based on percentage of spend, input, purchases, tenure etc. can be a helpful starting point but should not be the only criterion. It is important to hear from a diverse set of voices, as this gives a more complete picture of which ESG issues are material to your wider stakeholder base. This should include the voices of minority groups, which could fly under the radar if you only filter by percentage of contribution. 
• What number is a good number? When choosing how many stakeholders to reach out to, should you cast the net wide or target a smaller pool? Using the Ansarada tool this decision does not have to be made on the spot—you can start small and grow as needed. Bear in mind though, that as with any survey or assessment, the bigger the number of stakeholder responses the greater the validity and weight the report findings will hold. If you have 20 customers, then engaging with 10 customers should be a pretty good sample, not so if you have 10,000 customers! Start by choosing stakeholders with a strong interest in the sustainability outcomes of your business to narrow down your wishlist. You can add additional stakeholders at any time while your assessment remains open, and expand your outreach later, or follow up with deep-dive stakeholder interviews to probe further and fill in gaps. 
• If a person or organization falls under multiple stakeholder groups, you can choose to include them in either of the groups they represent, or both. For example, an individual who is both an employee and a shareholder can be included in both the ‘Employee’ and ‘Shareholder’ groups of your assessment, so their opinions can be captured through each lens. Where an organization is both a supplier and a customer, select respondents whose roles correspond best to each category (e.g. Customer Relations vs. Procurement, etc). 
• Lastly, don’t overcomplicate it! A Materiality Assessment is a great opportunity to really listen to the concerns and expectations of your stakeholders. By reaching out openly and proactively, you are paving the way for stronger relationships built on trust—a win whichever way you look at it.

A revolution in Materiality Assessments

Undertaking a traditional Materiality Assessment can be a complex and challenging process for organizations. Due to the wide range of potential issues and the number and variety of stakeholders involved, materiality can be time-consuming and costly. Without robust and user-friendly digitized tools to guide and streamline a very manual process, it can take up to 6 months and cost anywhere between $30k to $100k. 

In partnership with ESG experts One Stone Advisors, Ansarada has released a state-of-the-art digital Materiality Assessment, so organizations can start their ESG journey at a fraction of that time and cost outlay. Designed with leading practice structure and processes built in, the Materiality Assessment builds on recognized ESG frameworks. The output is a comprehensive, Board-ready report, with clear next steps to take and a blueprint for an integrated ESG strategy moving forward.