Engaging stakeholders to advance ESG outcomes
Transparency and accountability are essential for advancing ESG objectives. This means engaging the right stakeholders at the right time to progress your ESG strategy.
Identifying stakeholders in ESG
As expectations of business increase, companies with strong environmental, social and governance settings are more likely to attract loyal consumers, employees and investors.
Considering ethics is increasingly part of each purchasing decision, making it paramount for companies to prioritise a forward-looking ESG strategy.
To accelerate ESG progress, companies should identify stakeholders early and establish a structured stakeholder engagement strategy.
Stakeholders include internal or external roles, people, groups or organisations who have influence over ESG outcomes. These include the Board, investors, employees, suppliers, consumers, the local and global community and the media.
Stakeholders are those with power to drive, shape or resist change. Identifying stakeholders, then monitoring and defining their needs and expectations, can ensure the ESG strategy reflects the priorities of those who shape the business’s long-term success.
It is important to note that ESG stakeholders extend beyond shareholders, a view supported by 181 CEOs who attended the August 2019 Business Roundtable (BRT) in Washington. This stakeholder model continues to increase in sophistication and importance.
Role of stakeholders in ESG
The Stakeholder Value Creation Chain model was developed by Pay Governance to illustrate the relationships between ESG strategy and the creation of tangible value.
The model illustrates the need for companies to balance shareholder interests with long-term interests of employee satisfaction, productivity, customer loyalty and supplier relationships.
Stakeholders have varying levels of influence and interest in ESG. An effective stakeholder engagement strategy will consider this when determining the amount, frequency and type of communication and engagement.
Strategies for effective ESG stakeholder engagement
Consulting stakeholders ('where or why')
Establishing clear, relevant ESG targets and goals is the first step to meaningful stakeholder engagement. The Board is ultimately responsible for the stakeholder engagement strategy. Learn more: ESG Board Committee Charter
In this step, stakeholders provide information that informs internal decision-making about ESG issues.
Consultation should occur before establishing ESG targets, when targets change or when the social or regulatory environment changes. Consultation ensures companies have access to information, perspectives and concerns of stakeholders.
For example, before establishing ESG targets, companies may consult:
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Consumers or the target audience for the companies products or services
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Regulators or legal advisors to ensure targets also meet compliance obligations
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Employees to determine how ESG targets can align with their values
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Local or global community groups who are affected by ESG targets
Set quantitative ESG goals
Where quality data on sustainability and social justice measures, like diversity, equity and inclusion, is available, quantitative goals provide a clear target for internally accountable stakeholders as well as those with a positive externality impact.
Clear and quantitative goals enable corporations to stay accountable for promises to stakeholders. Those with internal accountability then become responsible for determining which stakeholders have the most influence over their ESG target.
Quantitative goals reduce the risk of greenwashing, which has the potential to damage a company's reputation, increase scrutiny from regulators and create risk of fines or litigation. Transparency on ESG targets and outcomes helps to protect the bottom line, as well as maintaining the trust of employees, investors and consumers.
Involving stakeholders ('how')
Where stakeholder knowledge and expertise can accelerate ESG progress, these parties should be involved in setting up processes, policies and operational procedures to guide the corporation in achieving ESG targets.
A corporation may involve:
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Sustainability, social justice and environment experts
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Local communities affected by business operations
Collaborating with stakeholders ('who and how')
Create channels for engagement
Establish channels for regular dialogue with investors, employees, customers and communities. Ensure that you seek input, actively listen to concerns and incorporate stakeholder perspectives into decision-making.
Consumer engagement may be driven by marketing and customer service, while communication with employees is driven by human resources and managers throughout the organisation.
Public relations and focus groups can monitor community sentiment and manage engagement with the broader community.
Collaborate with stakeholders when both parties have real influence on the ESG outcomes as partners in the process.
For example, corporations may collaborate with suppliers to make changes that improve sustainability in the supply chain.
When facing a challenge, hurdle, roadblock or plateau, plan to engage and collaborate with stakeholders with the knowledge or relationships to address the issue. This group may include the Board or a Board ESG sub-committee, the leadership team or external consultants.
Engage the right stakeholders at the right time
Know when to inform, consult, involve and collaborate with stakeholders to empower their own decision-making and inclusion in your ESG strategy.
Informing ESG stakeholders ('when')
Keeping stakeholders informed builds trust. Companies will inform stakeholders when ESG targets are set, met, not met or changed. No action is required from the stakeholders.
Empower (consumers and investors)
Informing all stakeholder groups of decisions that impact them empowers their decision-making. Consumers and investors can make informed decisions about whether the corporation aligns with their values and whether to engage.
Challenges in ESG stakeholder engagement
In Europe and globally, stakeholder views and expectations are mainly shaped by the external challenges faced by society. The rise of ESG as a measure of corporate behaviour began out of external stakeholder pressure from both citizens and the government.
It is the responsibility of corporations to listen to stakeholder voices, identify the underlying issue and implement the most effective ESG strategy to improve outcomes. This means testing and validating stakeholder perspectives and ensuring that decisions are data-based.
Learn more: Stakeholder Materiality Assessments.