[Ed. note: This guest blog comes from Dinah Koehler, ScD of CSO Partner. Dinah has extensive experience in environmental and climate matters and holds a doctorate in environmental risk assessment and management from Harvard School of Public Health. This is the second in a short series of blogs to help practitioners of any level better understand the concept of materiality in sustainability/climate reporting. Part 1 is here.]
Stakeholder engagement is key to materiality assessment. According to ESRS E1-E5 and S1, S3 and S4, consultation with affected stakeholders helps a company understand which sustainability matters are material. Stakeholder engagement “is central to the undertaking’s on-going due diligence process … and sustainability materiality assessment”. The emphasis should be on stakeholders who “can affect or be affected by the undertaking”, particularly those “whose interests are affected or could be affected – positively or negatively” (ESRS 1 para 24). Engagement is so important because, as I wrote earlier, “affected stakeholders” influence the speed and magnitude with which a sustainability matter becomes financially material.
However, getting it right is hard. Companies and consultants face criticism for deploying surveys asking “random” stakeholders about their “perception” of sustainability matters. The problem is that we don’t know (a) how individuals think about the likelihood and severity of a sustainability matter or (b) if their opinion can be used in a materiality assessment.
Can stakeholder engagement yield a useful ranking of sustainability matters based on “objective criteria” relevant to a company’s activities? Can we predict different stakeholders’ reactions to a specific sustainability matter, e.g. air pollution, toxics in drinking water, climate risk? Is it even reasonable to ask stakeholders to do this using an online survey?
The answer is a qualified YES.
Asking individuals how they think about risks has a long history in environmental protection and is informed by risk perception, a rich academic discipline grounded in behavioral science. Numerous studies document that different groups (e.g. race, ethnicity, sex, income level, educational level, political views) perceive environmental and health risks differently. In countries with higher social inequality, researchers observed that women and different races are more concerned about these risks than white men. The perception of environmental and health risks varies by occupation and proximity to industrial facilities or agricultural chemicals. Some groups are physiologically more sensitive to these risks: women of childbearing age, infants, small children and the elderly (“persons in vulnerable situations” according to ESRS 1 AR6.)
Affected stakeholders are not a unified block! A mother worries more about air pollution if she has an asthmatic child and lives within 1 mile of a major highway, in a dense urban area or downwind of a fossil fuel powered utility. A delivery man affected by extreme heat worries more about climate change. An office worker allergic to cleaning products or chemically treated office furniture worries more about chemical content in manufactured goods and products. The degree of worry (perceived impact materiality) depends on experience (i.e. illness) and knowledge of these risks – more on that in my next blog – and worry tends to lead to action.
Guided first by scientific risk assessment of environmental and social impacts relevant to the company’s activities, companies and their consultants can craft scenarios of how stakeholders are “affected” – as above. These scenarios inform questions that more specifically engage “affected” stakeholders where they live, work, and play. Stakeholder surveys also need to include questions about group membership (sex, age, income, race, occupation, etc) to better understand different perceptions of how they might be “affected” by sustainability matters. Drawing out these differences gives them equivalence, specificity and relevance. Following this process, surveys are not random because analyzing stakeholder responses based upon group membership yields meaningful information. It is now possible to understand WHY different stakeholders rank sustainability matters differently due to a deeper psychological dimension.
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