Materiality & Stakeholder Engagement: Building Strategic Insight for Sustainable Business
After a year of regulatory uncertainty for European businesses around sustainability reporting rules, the scope of the Corporate Sustainability Reporting Directive (CSRD) has now been clarified – taking approximately 90% of companies initially subject to compliance out of scope and weakening the future outcomes of the directive. However, strong principles were reinforced, and many lessons and good practices emerged from the preparation for CSRD. Among these are the importance of materiality assessments and stakeholder dialogue as strategic tools and disciplines, going beyond pure compliance.
Business in the Community Ireland (BITCI), in partnership with Technological University Dublin (TUD), brought member companies together during an interactive workshop to explore these valuable disciplines for all businesses. We examined how robust double materiality assessments (DMA) and stakeholder engagement practices can support risk management, shape opportunity pathways, strengthen operational resilience and deliver meaningful insight that drives business value.
Looking at various annual reports, integrated reports and universal registration documents, participants discussed the methodology and mindset for materiality assessments and stakeholder engagement and looked at the link with strategy and decision-making. This exercise allowed them to reflect on their own practices and how they are communicated through external-facing documents.
In terms of methodology for double materiality assessments, there is no one size fits all. Of course, available guidance provides some relevant steps. But organisations are encouraged to develop their own, aligned with their context and existing tools and processes. The ultimate goal is to get real, reliable insights into their impacts, risks and opportunities. Defining internally common and agreed objectives for carrying out the assessment, and the use you want to make of the results, appears to be the first essential step to develop your methodology accordingly.
Materiality assessments are a key tool to support any strategy cycle, framing or reframing of any sustainability and business strategies. Although this is acknowledged by the business community, the link between the outcome of the double materiality assessment and the structure and focus of the strategy is not very visible, clear or specified by companies in documents available externally. Could this possibly be due to the predominant focus on CSRD compliance and how new double materiality is? Although the discipline is not new, the reframing introduced by the CSRD and the European Sustainability Reporting Standards (ESRS) is still being assimilated.
The same can be observed for interim, regular reviews of the DMA, in between full materiality cycles. Adjustments to the strategy being made based on the ongoing review of the materiality, are not always shared with an external audience – and that is what we would recommend. Indeed, good practice is to regularly update the materiality assessment to account for any major changes in the internal or external environment, e.g. any mergers, acquisitions or divestment, changing legislation, change in procurement practices or in the supply chain, global events and geopolitical dynamics, new scientific evidence etc… That’s what we call dynamic materiality, recognising that sustainability topics, and therefore impacts, risks and opportunities (IRO), evolve over time and could continually change your strategy and focus, more or less significantly, which should also be disclosed.
The importance of designing reports with the targeted audience in mind, to communicate the message in the most appropriate way, also appeared clearly to participants as a key learning from the exercise. This can easily be overlooked given how demanding the exercise is, but it nevertheless represents a success factor. We have observed positive changes between 2024 and 2025 reports, with parts of documents being redesigned for better readability and clarity. Some progress can also be noted in the way companies engage with stakeholders, as part of the DMA or their engagement strategy, and how it is communicated.
Using stakeholders’ insights is of course a core component of the DMA. The spirit is to focus on deepening understanding of actual or potential impacts, risks and opportunities, rather than asking for perceptions. In an analysis from last year, Efrag noted that the representation of societal stakeholders and affected stakeholders remains quite low and that engagement methods remain quite generic. This doesn’t allow to get into the specificities of IROs with the targeted stakeholders. A small number of good examples are highlighted in the document.
A thorough materiality assessment doesn’t require mass engagement. It’s about asking the right questions to the right people, and targeting the stakeholders depending on what we are trying to understand and assess. For example, financial materiality should be assessed thanks to the insights of business-related stakeholders, those who know the business well and can help assess risks and opportunities e.g. internal subject-matter experts, and shareholders. On the other hand, impact materiality should be assessed using insights from affected stakeholders. Depending on the topic and impact, those stakeholders can be employees, but also communities, NGOs, wider societal stakeholders or the relevant proxies and experts.
In general, the key principles of an effective stakeholder engagement strategy include:
- ongoing and continuous dialogue with stakeholders,
- inclusive of all, particularly marginalised or affected groups,
- two-way and transparent communication, to listen to stakeholders and in return communicate feedback on how their voices are being heard and on the improvements being implemented.
Stakeholder engagement needs to be planned and measured with a strategy and indicators to be able to track progress and measure success. In the way these strategies are communicated in report, good practice is to provide an opening statement clarifying the ‘why’, the company’s position and intent with regard to this dialogue. It is rare to see constructive negative feedback from stakeholders reflected in company reports, the focus remains on positive feedback. This would benefit from greater transparency.
Done well, thorough materiality assessments and meaningful engagement with stakeholders forge a solid understanding of the impact of a company’s business model, illuminate the key risks, opportunities and areas for value creation associated with sustainability topics, and generate actionable insights that inform decision-making and strategic planning.
BITCI governance services help companies develop their sustainability leadership, effectively progress their sustainability agenda, and create strong foundations for accountability and disclosure. If you have questions or need support with your materiality assessment, stakeholder engagement strategy or approach to sustainability disclosure, please contact Neela Couture, Sustainability Adviser – Governance Specialist, at ncouture@bitc.ie .
