DIAKSES TANGGAL 27 NOVEMBER 2016

http://www.nextgeneration.co.za/effective-stakeholder-engagement-in-sustainabilityreporting/
Effective Stakeholder Engagement in Sustainability Reporting
By Reana Rossouw on March 15, 2015 in Articles, Sustainable Development
The Value of Effective Stakeholder Engagement in Integrated and Sustainability
Reporting
INTRODUCTION

Sustainability Reports are aimed at illustrating and communicating the outcomes of

measuring, disclosing, and being accountable to internal and external stakeholders for
organisational performance towards the goal of sustainable development.
The IIRC states that communication about value creation to stakeholders should be included
in corporate reporting. According to the IIRC, the purpose of an Integrated Report is to
communicate mainly to a companys financial stakeholders, i.e. shareholders or providers of
capital, how the organisation creates long term value. It recognises that the integrated report
is also a key source of information for various internal and external stakeholders. The IIRCs
guiding principles on integrated reporting assert that the integrated report should provide
information on the relationships with its material stakeholders.
Both integrated reports and sustainability reports are high quality reports that disclose an
organisations most material and relevant issues to their most material stakeholders. These
reports require concentrated stakeholder engagement that would allow a company to provide
and communicate accurate and transparent information about the long term viability of the
company. There are two key principles that govern the quality of a companys
sustainability or integrated reports: 1) stakeholder inclusiveness and 2) materiality.
STAKEHOLDER INCLUSIVENESS

Stakeholder inclusiveness refers to stakeholder engagement to the extent that it generates a

better understanding of stakeholder perspectives on key issues and builds relationships
towards more tangible business value creation. Ultimately, companies become more
sustainable through understanding stakeholder rights, needs and expectations, integrating
their inputs, measuring and monitoring activities and then providing feedback to these
stakeholders on progress (value creation) over time.
Therefore, stakeholder engagement needs to be treated as a core part of corporate
responsibility and sustainability, as it provides crucial input to business strategy and
management of reputational risk. Sustainability reporting should fit into a broader process

for setting organisational strategy, implementing action plans, and assessing outcomes.
Sustainability reporting enables a robust assessment of the organisations performance, and
can support continuous improvement in performance over time. It also serves as a tool for
engaging with stakeholders and securing useful input to organisational processes.
MATERIALITY

Materiality includes matters that are significant to a companys activities. Materiality takes
into account substantial economic, environmental and social factors in addition to financial
factors. By determining its most material issues, a company can clarify and confirm the
strategic themes that drive the long-term success of the business (sustainability), ascertain the
most significant risks and opportunities, and manage the expectations and priorities of its
stakeholders. Materiality identification provides a company with a competitive advantage,
enabling the generation of business intelligence and knowledge, assists with the anticipation
and management of change and of course, influence the companys strategic direction,
management priorities and therefore its performance over time, thus contributing to a more
sustainable future. Enabling informed decision-making and avoiding or reducing risks
ultimately contribute to a more stable environment for society and business, and develops and
expands market opportunities. The link between stakeholder inclusiveness and materiality
is undeniable, as stakeholders assist in the identification and prioritisation of material
issues.
SELECTING STAKEHOLDERS

Increasingly, issues that are important to society e.g. water scarcity, cultural preservation,
health, education, environmental protection, and climate change are becoming critical factors
for companies to consider strategically and address operationally. Shareholders, investment
partners, boards and executives will always need to know what is in the best interest of the
companys financial performance, but prioritising issues based on a companys financial
needs will become less effective if these fail to also reflect societys rights, needs and
expectations. The only way that companies can address this enigma effectively is to engage
the stakeholders that are impacted by their operations and balance this through the
engagement with financial stakeholders.
Stakeholders should not be lumped together in homogenous groups. They should be
separated into groupings such as internal stakeholders and external stakeholders or directly or
indirectly impacted/affected stakeholders or even primary/secondary or tertiary stakeholder
groups. Of course, these stakeholder groups will vary from year to year as the most material
issues are identified and prioritized year after year. Additionally, stakeholder groupings
should also reflect potential impact on companys performance, potential risk, opportunities,
operational and strategic alignment. Engaging the right stakeholders in the right way will
ultimately result in on-going learning about and improvement of the organisation as it
provides in-depth knowledge and understanding about specific sustainability and business
topics and challenges.

STAKEHOLDER ENGAGEMENT PROCESSES

Stakeholder engagement is not a once-off annual intervention but a continuous process and
comes in many forms. This insight creates the need for a well-defined stakeholder
management process and approach. Many companies struggle with marrying the concepts of
stakeholder engagement and reporting. Traditional forms of reporting are based on the
manipulation of static information to convey desired messages at particular intervals e.g.,
annually through the Annual Financial Report.
Quality sustainability and integrated reports, however, should be the outcomes of continuous
engagement processes that include planning, information gathering, consultation,
collaboration, collation, alignment, execution, measurement, monitoring, priority assessment
and communication. Key principles to determine the appropriate stakeholders include an
understanding of:

The rights, needs and expectations of stakeholder groups

The impacts of the companys activities on stakeholders positive and

negative

The risks emanating from the companys activities

The most critical and prioritized issues that need to be addressed per
stakeholder group

The most appropriate and effective strategies which will contribute to

achieving business objectives while addressing stakeholders requirements

Measurement, monitoring and reporting on stakeholders expectations and

priorities, and company commitment and performance in response to
stakeholder expectations

For each stakeholder engagement, objectives need to be set and formats selected e.g. private
meeting, roundtable discussions or stakeholder panels etc. A company needs to ensure that
the engagement approaches used provide meaningful and relevant data. Research techniques
that get real insights even in situations where people are inclined to lie, or where their
aspirational statements dont meet their actions or where they have raised issues previously
such as grievance and complaints lines can be interesting starting points for a more creative
and proactive stakeholder discussions.
Furthermore, a clear distinction between normal company communication activities (such as
investor relations, government relations, industrial relations, etc) and company
communication channels (such as advertising and marketing) with various customer groups
(such as suppliers, consumers, employees) needs to be made. Engagement for reporting on
specific material issues is far removed from daily/regular communication with stakeholder
groups.

LEVELS OF STAKEHOLDER ENGAGEMENT

Stakeholders have the ability to influence the success or failure of a company at various
levels. The level to which each stakeholder should be engaged will depend on the potential
risk and impact of the stakeholder on the company and vice versa. Corporate governance
systems are becoming more responsive and aligned to stakeholder interests and companies
are going beyond engagement to develop collaborative partnerships with stakeholders. To be
effective and fair, governance systems should have the capacity to respond to differences in
power and access to resources between and within stakeholder groups. Engaging with
stakeholders and using their inputs for decision-making is fundamental to understanding
financial risks and managing sustainably. For this reason, social investment indices, such as
the Dow Jones Sustainability Index and the JSE-SRI Index give more weight to stakeholder
engagement than to any other social impact measure.
FEEDBACK TO STAKEHOLDERS

Historically, companies feedback to shareholders was mainly based on financial indicators.

Now, triple bottom line indicators and the relative weighting of each indicator in decision
making have become critical for companies to articulate. Currently, measurement of
stakeholder engagement used in standards, guidelines and performance assessments rely on
the existence of processes and policies for engagement. However, the need for more
sophisticated measures of engagement e.g. that measures the degree of embeddedness of
stakeholder engagement in business strategy processes and systems, are becoming more
critical. It is in this regard that accountability and responsibility for stakeholder
responsiveness in the South African context is assigned as a function of the Social and Ethics
Board Committee.
Communication to stakeholders (or disclosure) must relate to the topics of interest to
stakeholders as well as the key performance indicators that will illustrate impact and progress
and provide decision making data in a meaningful format. Stakeholder feedback through
sustainability and integrated reports needs to show how companies determined what to focus
on (materiality) , what to include and exclude (stakeholder inclusiveness) and how content
was accumulated (stakeholder responsiveness). Stakeholders should be clear on the
organisations progress on its sustainability journey, its future plans and its performance
target commitments. Key guiding principles for Stakeholder Reporting include:

Transparency Clarity about intentions, actions and impacts

Authenticity committing and executing on core values and principles

Measurement how impacts will be measured, monitored and reported

Engagement providing options for stakeholders/communities to

contribute and participate

Deciding how information will be disclosed to stakeholders will therefore depend on what
stakeholders would like to know (and read in sustainability and integrated reports) and how
the presented information will be used in their own decision-making process about the
company.
STAKEHOLDER ENGAGEMENT FOR INTEGRATED AND SUSTAINABILITY REPORTING

The content of a sustainability report needs to reflect an organisations most significant

economic, environmental and social impacts, challenges, risks and opportunities, as well as
the issues that substantively influence stakeholders decisions about the future sustainability
of the organisation. The materiality principle prioritises economic, social and environmental
issues in terms of business sustainability and informs stakeholders decisions. What is
material to the financial stakeholders and shareholders is no longer the only lens that
determines a companys most material issues. All stakeholders of a company should have a
voice. Therefore, there is a significant overlap between stakeholder inputs for sustainability
reporting and integrated reporting. It only makes sense to combine the stakeholder processes
for both reports. Viewing stakeholder engagement as a key strategic activity feeding into
reporting is fast becoming the norm.

CONCLUSION

Smart stakeholder engagement equips companies with stakeholder buy-in and collaboration.
Proactive engagement enables companies to create competitive advantage and informs
strategies, policies, decision-making processes, accountability and ultimately sustainability.
Through engagement, companies can proactively identify complex problems and act on them
before they become crises, eliminating the risk of reputational damage. The insights from
well-managed stakeholder engagements will benefit both sustainability reporting and
integrated reporting. It therefore creates strong linkages between the two forms of reporting.
Next Generation Consultants have extensive experience in Stakeholder Management. We
assist companies with conducting stakeholder engagement for reporting purposes, assist in in
stakeholder strategy and policy formulation and assist with reporting to stakeholders through
Sustainability and Integrated Reports. We also train companies in effective stakeholder
management. For more information contact: rrossouw@nextgeneration.co.za.
[1] Global Reporting Initiative Sustainability Reporting Guidelines 2013
[2] The International Integrated Reporting Council Basis for Inclusions International <IR>
Framework 2013
[3] Global Reporting Initiative Sustainability Reporting Guidelines 2013