Why listening matters more than ever

The introduction of mandatory climate-related financial disclosures legislation and the release of the new Australian Sustainability Reporting Standards (ASRS) by the Australian Accounting Standards Board (AASB) in September 2024, will impact a large cohort of Australian businesses. The ASRS comprises:

• AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information – a voluntary Standard
• AASB S2 Climate-related Disclosures – a mandatory Standard.

These standards align with international trends, focusing on transparency, accountability, and providing a framework for companies to report on environmental, social, and governance (ESG) factors. A key requirement under the new standards is assessing the materiality of climate-related risk and other emerging risks.

While AABA S2 focuses on the financial materiality of climate risks and opportunities, AASB S1 broadens the scope beyond just climate impacts, helping companies address broader sustainability issues. But one crucial component of successfully addressing broader sustainability issues is often overlooked – stakeholder engagement. In fact, listening to stakeholders should be the foundation of any effective sustainability strategy. Robust stakeholder engagement plays a pivotal role in assessing materiality, embedding sustainability in the business strategy, ensuring reliable reporting, and adding legitimacy.

If your company meets the threshold for mandatory climate-disclosures stakeholder engagement will be essential to ensuring a robust risk and opportunity assessment. It is also key to ensuring you have high-quality data for reporting. Even businesses that do not meet the mandatory climate-disclosures thresholds will need to prepare for reporting. If you supply to companies that are required to report, they will be asking you for your data due to the requirement for a value chain assessment.

Five reasons why stakeholder engagement is a game changer

1. Unique insights
   In the context of sustainability, stakeholders include a wide range of groups: investors, customers, employees, suppliers, regulators, and local communities. Each of these groups has a different perspective on how your organisation conducts itself regarding its social and environmental impacts. Engaging these stakeholders is not just about ticking a box—it is a strategic process that aligns your sustainability strategy with the concerns and priorities of the people who are directly impacted by your business as well as enhancing both the quality of data and the credibility of the sustainability report itself.
2. Ensuring comprehensive and relevant data
   Effective stakeholder engagement helps companies identify which ESG factors are most material to their business. Investors may prioritise financial risk associated with climate change, while local communities might focus on the company’s impact on biodiversity or water use. By understanding and responding to these diverse concerns, companies can ensure that they are collecting relevant and comprehensive data that reflects the true scope of their environmental and social impact.For example, if a company only focuses on internal metrics without considering external stakeholder feedback, it risks overlooking critical issues, such as human rights in its supply chain or its contributions to community development. Proper engagement with stakeholders ensures that the data gathered is holistic and representative of the organization’s broader responsibilities.
3. Building credibility and trust
   When companies actively involve stakeholders in their sustainability journey, it signals transparency and a willingness to address challenges. Engaging with investors, regulators, and communities during the preparation for ASRS reporting can also provide early insights into their expectations, allowing organisations to align their reporting processes accordingly.Transparent engagement helps mitigate the risk of being accused of greenwashing or social washing, where companies overstate their sustainability efforts. Regular dialogue with stakeholders ensures that the data shared in reports is not only accurate but also validated by external parties.
4. Driving continuous improvement
   Engagement is not a one-time activity—it should be a continuous process that evolves as the company’s sustainability practices mature. Through ongoing dialogue, companies can receive feedback that helps them identify gaps in their reporting, adjust their strategies, and improve their overall sustainability performance.For instance, a company that engages its employees may discover ways to reduce carbon emissions in its operations or to improve diversity and inclusion practices. Similarly, feedback from suppliers could highlight opportunities to strengthen responsible sourcing. These improvements, in turn, feed into more robust and credible ASRS reporting, enabling companies to present a more authentic and accurate picture of their sustainability journey.
5. Addressing regulatory and market expectations
   The ASRS reflect the growing regulatory and market demands for transparent and consistent sustainability disclosures. Regulatory bodies, such as the Australian Securities and Investments Commission (ASIC), are paying closer attention to sustainability and climate-related risks, and institutional investors are increasingly considering ESG criteria in their decision-making processes.Stakeholder engagement enables companies to stay ahead of these evolving expectations. By actively communicating with regulators, industry groups, and investors, companies can ensure that their sustainability reports comply with the latest guidelines and reflect best practices. Moreover, this engagement can help businesses anticipate future changes to reporting standards, giving them a competitive edge in sustainability leadership.

Engaging stakeholders in ASRS reporting preparation

These five steps will you ensure your stakeholder engagement is effective:

1. Map stakeholders: identify all stakeholders including those along your entire value chain and categorise them based on their influence and interest in your sustainability performance. Tailor engagement strategies to ensure meaningful interactions with each group.
2. Engage early and establish clear channels of communication: create formal mechanisms, such as surveys, workshops, or advisory panels, to gather stakeholder input consistently. Involve key stakeholders, including board members, management, and external advisors, in the development of the disclosure strategy to ensure comprehensive and informed reporting. Ensure that employees at all levels understand the importance of climate-related disclosures and their role in the reporting process, fostering a culture of sustainability within the organisation. Educate and empower your internal stakeholders with training sessions relevant to your organisation’s specific disclosure obligations.
3. Integrate feedback into strategy: ensure that stakeholder feedback influences not only your sustainability reporting but also your broader corporate strategy. Align your ESG goals and action plans with stakeholder expectations.
4. Be transparent: share how stakeholder input has shaped your decisions and actions. This transparency reinforces trust and demonstrates that engagement is not a superficial exercise.
5. Continuous engagement: engagement should not end with the publication of the sustainability report. Keep stakeholders informed of progress, new challenges, and upcoming initiatives to maintain long-term trust.

Through effective engagement, organisations can ensure that they gather robust, comprehensive data that accurately reflects their sustainability performance while also building trust and credibility with their stakeholders. By making stakeholder engagement a cornerstone of their sustainability reporting process, businesses not only comply with regulatory requirements but also position themselves as leaders in sustainability and corporate responsibility.

The bottom line: listening is more important than ever

With an increasing focus on sustainability reporting, stakeholder engagement is more crucial than ever. Businesses that actively listen to their stakeholders will not only meet regulatory obligations but also build long-term value by aligning their strategies with the concerns of those they impact.

In today’s evolving sustainability landscape, listening isn’t just a courtesy—it’s a strategic necessity.

At Phillips Group, we help companies engage and work with stakeholders to understand their material sustainability and ESG risks and opportunities and develop strategies that ensure sustainable growth. Connect with our Senior Sustainability Consultant, Robyn Kozera, today.