Reana RossouwWritten by

Sustainability practices, the environment and social relationships

Advisory and consulting| Views: 119

Political agendas and shifts in international politics are impacting stakeholder engagement and management trends. Managing political, social and environmental risks and the impact thereof in relation to stakeholder management are becoming increasingly important topics for companies.

Sustainability practices and reporting on social relationships are global recommendations, and they are necessities. Only when companies know how they impact or are impacted by stakeholders can they improve their business practices in order to reduce risk.

Companies’ operational impact on stakeholders is an international concern and the main focus for many advocacy groups. These groups frequently lobby and protest in order to raise awareness about issues that pertain to human rights, consumer and community rights or employee and supplier rights. What companies stand for and how they integrate human rights in business activities is a global focus.

The importance of engagement

Improving services in society and caring for the environment is a growing trend and responsibility for companies. Governments are dedicating less time, money, resources and research towards mitigating the impact of climate change and other related environmental issues, such as improvements of infrastructure (for example roads, water, sanitation and air quality).

Communities fighting for survival and against poverty are aware that they cannot rely on governments to provide or improve basic services to ensure their quality of life. Public trust in governments and business is diminishing. Activists are adopting more sophisticated strategies to attack their targets, which now include broader supply chains and investors. Competition is also becoming more dynamic, and businesses need to balance anticipating disruption with focusing on core services, customer loyalty and stakeholder trust.

A more integrated approach to stakeholder engagement is needed

This approach should incorporate consideration of political risk, societal transformation, dramatic shifts in perception and focus on building social licence at all levels. A deep understanding of stakeholders and a proactive response to their emerging needs is now required, as communities are likely to turn to businesses and corporations, expecting open dialogue and engagement on how to improve environmental, social and economic issues. This increased expectation from communities from the business sector is likely to increase, especially in areas where climate change drastically impacts society.

Drought, lack of clean air, water and proper sanitation, lack of or constrained and limited access to energy and electricity affect society so severely that business cannot be part of an unsustainable environment in which they hope to trade profitably. Community stakeholders particularly have redefined environmentalism in the context of justice and equality for minorities and the poor.

The link between companies, people and the environment

The understanding that companies have responsibilities towards people and the environment is growing. The task of tackling climate change and cleaning up the environment is a challenge as well as an opportunity. The challenge is clear, and the opportunity lies in creating equitable and inclusive communities through sustainable business practices.

The right to development is a basic human right and companies are becoming aware of how human rights practices must be an integral part of all business activities. Increasingly, issues relating to the environment are becoming issues of law and of justice. Companies impacting the environment negatively will be held accountable on the grounds of violating human rights. Companies must be aware of how people and the environment are interlinked.

Stakeholder engagement and technology

Technology and social media particularly have impacted business greatly, as technology makes it easier to communicate with stakeholders constantly and globally. The converse is also true – engagement is not always positive, as technology and social media provide opportunities for a company’s stakeholders to complain and raise issues globally, instantaneously. This era of constant information and communication has a direct impact on an organisation’s reputation.

As the world evolves and the pace of innovative communication technology increases, the opportunity to work with stakeholders globally will also increase. In an era of hyper-transparency and political and social disruption, companies are reevaluating their purpose in society.

There are growing calls from government and civil society for corporations to become partners in supporting a more inclusive economy and sustainable environment –and these expectations will only increase. More than ever before, companies face competitive pressure to integrate new ideas and voices into their work and demonstrate that their operations add value to the communities in which they operate.

It is no longer sufficient to hold an annual general meeting to obtain shareholder insights. Neither is it good enough to seek the perspective of general stakeholder representatives on issues a company has already taken a stand on.

Intermittent and infrequent engagement simply won’t ensure that companies keep up with the pace of change. Stakeholder engagement must evolve from a process that is too often undertaken merely for the sake of doing it to a strategic priority that integrates diverse stakeholder feedback and input deeply into all aspects of a company’s operations.

This transformation requires more than a robust process or the use of a new engagement technology. It involves a much broader perspective on the purpose of stakeholder engagement and the incorporation of more diverse stakeholder voices, and it includes an understanding of the strong links between stakeholder input and corporate strategy. There is a significant opportunity for companies to incorporate stakeholder thinking to become more collaborative, inclusive and strategic.

Recognition boosts sustainability

Companies that recognise the full spectrum of contributions stakeholder groups can make, including expertise, credibility and social networks, as well as the opportunities to innovate and collaborate with stakeholders to manage shared societal challenges, will be more sustainable.

These companies see a more networked world as a way to better understand and manage systemic change, and seek to engage beyond their direct network to include individuals and groups that influence the company’s operating environment. They recognise that a thriving company requires thriving communities, leading them to engage more deeply and more frequently to address the issues that impede social development. They understand that engagement cannot be a limited, time-bound exercise run by a single team, but requires the ongoing collaboration and involvement of employees, management and executives across the organisation.

Accountability and responsibility over supply chains

The globalisation of businesses has been characterised by the establishment of complex global supply chains. Although this has improved efficiencies and reduced the cost of consumer products, it has also resulted in severe problems with working conditions and environmental degradation in many supplier operations.

The initial response from Western multinational companies to these problems varied, and meaningful action has been slow to emerge. As stakeholder and consumer concerns have grown—and the UN Guiding Principles on Business and Human Rights have provided a meaningful framework—supply chain oversight has emerged as a critical corporate priority.

Most large multinational companies have created programmes to assess and influence the social performance and regulatory compliance of their suppliers in an attempt to build supplier capacity to manage social, environmental and governance risks. The effectiveness of these programmes – many of which rely on audit/due diligence models and have been in place for years – is increasingly being questioned, as serious labour rights violations continue to be revealed.

So far, public concern and business action have focused on specific issues such as conflict minerals, apparel manufacturing in Asia, and forced and child labour in the Middle East. This reflects a response to specific instances of death, injury and rights violations of workers in these supply chains. As similar incidents occur in the future, pressure will continue to mount for collective industry action and targeted regulations. It is difficult to predict which industries and geographies will be affected, and many of the challenges are systemic and difficult for individual companies to address. The current approach of self-regulation in supply chains is likely to be insufficient in the face of increasing transparency.

While government enforcement has been lackluster, there are signs governments may seek a greater role in the regulation of corporate supply chains. Companies that recognise the value of engagement with suppliers in this regard would be able to minimise reputational, operational and labour risk.

Human rights impact stakeholder engagement

Competition and consumer awareness are impacting companies’ sustainability and human rights practices. Incorporating human rights as a company ethos is a global trend, especially for those operating internationally or in sectors associated with high risk. Modern brand strategies are embracing human rights and other ethical and moral imperatives.

Wanting to do good, supporting sustainability practices and advocating for social justice are increasing the value of brands and reputations of companies, which tend to have the added benefit of a positive effect on revenue and profitability.

Consumers are increasingly more aware and supportive of companies promoting sustainability practices. What companies stand for and the theories behind what will strengthen “brand reputation” are vital. Incorporating human rights considerations into stakeholder engagement is challenging because it requires a shift in the standard corporate approach, which considers issues in terms of business risk and opportunity. A focus on impacts and rightsholders is increasingly understood to be part of any credible corporate approach to human rights management.

The human rights perspective starts with the interests of rightsholders (those who are affected by a company) and prioritises the most disadvantaged rightsholders.

Companies that conduct human rights due diligence seek to gain input from rightsholders, with a preferential option for the vulnerable. They are making a special effort to consult with minority groups and individuals who might be particularly affected, such as human rights defenders, political dissidents, women, young people, minorities and indigenous communities. This helps the company to assess all potential impacts of its operations, not only those that affect the majority of stakeholders.

The future of stakeholder engagement

The future of stakeholder engagement will see a closer focus on the interaction between internal and stakeholder interests, and the strategic prioritisation of initiatives that can credibly serve both. It will see more structured and transparent metrics for stakeholder engagement (an effort still in its infancy) that will incorporate concepts of value that go beyond short-term and financial metrics. And it will see more sophisticated and innovative approaches to collaboration and co-creation.

Companies can move toward greater collaboration with their most important stakeholders by:
  • Broadening the concept of stakeholder engagement beyond a narrow focus on risk, to include concepts of impact on rights-holders.
  • Thinking more broadly about the assets that stakeholders have to contribute to the company, and what value the company brings to its stakeholders. This might include expertise in a methodology or industry, or better access to a geography, population group, financial resources, credibility, relationships and networks.
  • Involving stakeholders in the process of designing solutions, products and services.
  • Ensuring that stakeholders are receiving equal value when designing stakeholder dialogues.
  • Actively cultivating relationships with external changemakers on sustainability topics that are most material to the business, even if the changemaker does not yet have a direct link to the business.
  • Considering complex questions of collaboration, consent and mutual benefit, proactively and as early as possible.
Sustainability practices, reporting and stakeholder engagement

Reporting on stakeholder engagement reflects on how businesses impact society. The importance of stakeholder engagement as an overall interactive mechanism and more precisely as a part of the sustainability reporting process has become increasingly critical in the corporate sector. Stakeholder engagement in sustainability reporting is specifically of interest because it is an important tool for identifying and understanding material concerns, issues, perceptions, needs and expectations of stakeholders in relation to sustainability issues.

Quality stakeholder engagement in the sustainability reporting process increases responsiveness, transparency and accountability and addresses the problem of determining the extent and scope of accountability of companies by placing boundaries on the reporting responsibilities of companies. As such, sustainability reporting is a collaborative process between an organisation and its stakeholders and is regarded as a learning and development process. It plays a critical role in ensuring that the outcomes of the reporting process are relevant to stakeholders and reflects their key issues, aspirations and concerns.

Meaningful stakeholder engagement demonstrates organisational accountability towards stakeholders and ensures that the organisation’s decisions are based on an accurate and full understanding of stakeholders’ aspirations and needs.

Stakeholders can be invited to participate in an array of reporting activities, including establishing the purpose and scope of stakeholder engagement in sustainability reporting, measuring sustainability performance, planning the engagement processes, identifying key sustainability indicators and targets, validating the information to be presented in reports and determining strategies for improving sustainability performance.

During the preparation of a sustainability report, stakeholders’ reasonable expectations and interests become the key reference point for many of the decisions such as the scope, boundary, application of indicators and assurance. Failure to engage and meet stakeholders’ expectations could undermine the credibility and suitability of reports and more adversely threaten the organisation’s licence to operate.

Once a sustainability report is complete, it provides companies with an opportunity to communicate information to a much wider range of stakeholders about the environmental, social, economic and governance performance of the business. It also offers a platform to report back on the process of stakeholder engagement itself, such as who has been consulted, on what topics and with what results. Consequently, a number of international codes and standards for corporate reporting now includes requirements for implementing and reporting on stakeholder engagement.

Next Generation has extensive experience in sustainability reporting, human rights management, social innovation and stakeholder engagement. Our services with regard to stakeholder management include stakeholder identification, analysis and prioritisation, engagement strategies, supporting research such as stakeholder perception surveys as well as socio economic surveys to understand stakeholder contexts.

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