This article is the 4th in a series of 5 on double-materiality assessment according to the CSRD documents. According to the founding texts that inspired the drafters of this new regulation at EFRAG, the notion of stakeholders is crucial to increase transparency and impact.
Section 3.2 of the summary reminds us that all stakeholders must be considered in the broadest sense of the term. These include those affected directly, such as employees, customers, investors and suppliers or service providers, as well as those affected indirectly, such as local communities, NGOs and so on.
Article 22 gives the broad outlines, while article 111 goes into more detail, but the stakeholders concerned are as follows:
- People who are affected for good or ill by the company's activities, either directly or through the value chain.
- Users; those who have an interest in consulting the company's sustainable performance, such as public authorities, investors, economic partners, civil society organizations (associations, etc.), trade unions or social players.
ESRS 2 calls for transparency in stakeholder consultation. Even if the CSRD does not detail the method of consultation, it must be able to justify that it was carried out in an impartial manner, in order to get a real idea of the impact. It is therefore difficult to justify an internal consultation of a few stakeholders.
Engagement and consultation are therefore recommended, although not mandatory. However, it is recognized that measuring the impact of these stakeholders enables us to gauge the severity of the situation and prioritize actions.
2. Stakeholder consultation helps to better estimate IROs and their scale, scope and irremediability
The note reminds us that the principle of stakeholder consultation is one of the methods recommended by the United Nations and the OECD, which are sovereign texts for CSRD. However, the notion of stakeholder consultation remains poorly expressed in this European regulatory framework, no doubt for cultural reasons, where leadership is traditionally less familiar with the collective approach. The CSRD therefore makes extensive mention of stakeholder consultation, but prefers to refer to “due diligence” to justify this approach.
The principle of “due diligence” is a means of investigating and verifying the quality of a company by asking the main parties concerned to confirm or provide information of decisive importance.
This concept, which originated in the United States, enables companies to take advantage of new opportunities while minimizing risk. After all, how can you be sure that a new product that hasn't had time to build up its reputation isn't a scam? Particularly in e-commerce. The answer: by relying on feedback. The principle of “due diligence” is echoed in the emergence of online ratings and influencers who vouch for a brand.
These “due diligence” and “peer review” mechanisms were not part of the French DNA. They have penetrated our purchasing habits more slowly than in other countries, but in France, too, people are starting to look at online ratings before making a purchase.
Traditionally, France favors more administrative, more unilateral forms, as demonstrated by the introduction of extra-financial reporting at the CSRD level. These unilateral procedures do not provide as many guarantees as the stakeholder audit.
Heir to the recommendations of the UN and “due diligence”, Rate A Company's audit makes it possible to measure the company's and value chain's IROs on all ESRS using a simple methodology and words. This transparent approach, backed up by regulations, provides a scientific assessment of the severity, extent and irremediability of IROs.
But above all, this “stakeholder” approach enables us to work on the value chain in an unprecedented way, as required by ESRS 2. We shall tell you more in a forthcoming article, but if you can't wait and are concerned by CSRD, don't hesitate to send us a message.
Article 64 of the note on dual materiality clarifies that a company must devise a procedure that enables these IROs to be measured by reporting specific facts and contexts that will enable the weight of this materiality assessment to be judged. It is important to establish a transparent, legitimate and qualified approach within the CSRD framework.
2. Stakeholder consultation helps materialize financial risk
For the notions of impact, risk and opportunity, we also need to estimate the financial side of these materialities. In the vast majority of cases, sustainability issues have direct economic consequences. The CSRD points out that it is therefore not necessary to carry out two separate procedures. Sustainability indicators can be presented at the same time from both an IRO and a financial perspective, except when the two are not correlated. If there are financial consequences without a sustainable context, or sustainable IROs without a financial impact, they should be presented independently.
For CSRD, stakeholder consultation also enables us to better estimate the associated financial risk: will my customers continue to buy this type of product? Are my customers loyal? Will my suppliers increase their costs? Etc.
We asked several companies, formerly involved in carbon measurement and now experts in CSRD, how they proposed to measure materiality with partial indicators for CO2 emissions and without sensitive internal company documents or stakeholder consultation. Incomprehensible answers were given with pretty marketing words meant to impress.
But let's not forget that CSR is first and foremost about putting common sense back into our business practices: if we can't clearly explain the measurement of indicators, then the concept doesn't hold water.
Find all the articles, in order:
1. The CSRD double-materiality principle easily explained
2. summary of the principles of double-materiality assessment, the ESRS and their sub-categories
3. What is the method to measure the CSRD's double-materiality ?
4. The importance of consulting stakeholders for the double-materiality assessment
5. The 3 steps to writing a CSRD materiality assessment
