Greater transparency: stakeholders and materiality
Author: Mónica Bové. Consultant at Bové Montero y Asociados.
In recent years, growing demands from voters, public authorities, and consumers in favour of more and better reporting have seen progress made regarding transparency: beneficial owner registers, automatic exchanges of financial information, transparency gateways in the public sector, and, of course, social networks and platforms are both symptoms and catalysts of this advance.
In the business world, the calls for transparency are not limited to financial reporting, as investors, consumers, and society as a whole continue to demand more transparent, comparable, and precise information on qualitative aspects such as the business structure, strategy, and activities. Investors can use the non-financial information to understand the actual risks and sustainability of the business, while consumers – increasingly concerned with the wellbeing of the planet – can measure and compare the impact of business activities on society and the environment.
Amidst this surge of transparency in the private and business sector, the EU Directive on disclosure of non-financial and diversity information by certain large undertakings and groups sets out requirements for organisations to report on environmental, social and employee-related, human rights, anti-corruption, and bribery matters.
Although this requires businesses to invest time and resources, we can make a virtue of necessity: the requirement to prepare a report is also an opportunity for organisations to communicate their strategy, policy, values, and results regarding social and environmental issues, thereby promoting a long-term vision that contributes to differentiation and value creation.
A preliminary and critical step in the process of preparing the report (or NFR, for non-financial report) is analysing and identifying the organisation’s stakeholders and the material issues. In other words, (i) who are the stakeholders that have or may come to have significant influence in the organisation? and (ii) who are the stakeholders that are or could become significantly affected by its actions (e.g. consumers, employees, and shareholders)? Having identified these groups, the organisation must then determine the key factors for each of them, and for the company itself (e.g. quality of product or service, customer satisfaction, employee wellbeing, efficient use of resources, and a circular economy).
Finally, this analysis can be used to create a materiality matrix and reveal the key issues for the organisation and its stakeholders. These are the priorities to include and elaborate in the NFR.
It is clear that accurately identifying stakeholders and materiality is the cornerstone on which the report will be built. It is therefore advisable to establish channels of communication with stakeholders so as to determine and assess the strategy for material issues, and the indicators that will allow its results to be measured. In addition, the need to prepare a report annually means that the organisation’s strategy should focus on the consistent improvement on material issues over time.
Experience has shown us that preparing the first report can be a delicate process. After all, it is a new obligation, which affects various areas of the organisation and requires several means of gathering information. The first year is therefore key, and should serve as a reference for structuring the report, establishing channels of communication with stakeholders, and defining data-gathering processes that will ease the workload in years to come.
The necessary effort will not be in vain: the returns – in the shape of boosting stakeholder trust – are definitely worth it.
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