ESG and Stakeholder Engagement in a Fraught Era

To advance responsible and business conduct amid conflicting cost-cutting policies, companies must engage stakeholders better, faster and more broadly. Ksapa shared 5 priority areas for immediate action and opened the conversation on challenges and solutions to the expert insights of Susanne Stormer (Novo Nordisk) and Christèle Delbé (Bonsucro). Do not miss out on this webinar replay!

Stakeholder dialog sits squarely at the heart of any Corporate Responsibility, ESG and Sustainability strategy. That said, many businesses still find it challenging to meaningfully engage stakeholders despite growing demands for concertation, transparency and process improvement. Then came Covid-19 which doubled down on preexisting concerns… and resentments.

What emerges from ourconversations with non-profits, investors and corporates is that the theory of stakeholder engagement is deceptively simple. As a result, the ability to project collectively into the future proves decisive, pushing key players to no longer rely on reporting past performances but demonstrate actual impact on the ground. To that end, common goals must be clarified to collectively manage uncertainty. Conventional project management combined with enhanced data may offer necessary tools, but cannot (and must not) the power of shared purpose.

Socially-Fraught Stakeholder Engagement On The Ground

Businesses face a growing number of opinions, voiced through more and more channels and on increasingly conflicting issues. As a result, designing engagement goals and processes to select relevant stakeholders must transition toward structured and long-term stakeholder engagement.

To that effect, Novo Nordisk shared a highly illustrative example of how tense stakeholder dialog may become. In the early 2000’s, a coalition of non-profits accused the group of withholding access to lifesaving medicine amid a debate on patent-law changes favorable to generic drugs. Given the allegation became a critical business risk with legal ramifications, it exemplifies Ksapa’s 5 key principles for effective stakeholder engagement.

First, the Group was catapulted into managing multiple players, each with their own angles and expectations. Well before the social media era, civil society organizations proved ruthlessly efficient at targeting businesses on their home turf, where more stringent standards and law would favor their initiative. The second question to address then is how to be balance short-term crisis management and more proactive, continuous and timely dialog. In this instance, the Group was made to juggle topical diversity – not least of which because it was challenged on a drug it did not manufacture – and its difficulty in reacting rapidly enough. Because it could not fall back on preexisting engagement, the Group had to mobilize the least expandable resource of all: their CEO approached highly-critical voices directly to understand and address their concerns.  

A key takeaway from approaching these 3 first steps from a perspective of crisis management – rather than that of open dialog – is that stakeholders tend to identify as rightsholders in relations to corporate operations. This when companies are not always aware of their existence, let alone their expectations. Investors had in fact alerted Novo Nordisk to the rising materiality of social inclusion, Human Rights due diligence, climate change and biodiversity loss. They had however been considered too niche to be granted full consideration. This goes to show how essential a mapping and prioritizing its stakeholder ecosystem is to a company hoping to build strategic alignment, identify material issues and set up internal resources accordingly. It also demonstrates how businesses are bound to continuously develop topical intelligence and competence.

For now, companies tend to struggle to develop adaptation and active listening skills so necessary to ensure timeliness and continuity in stakeholder dialog. Without them, they often lack a clear understanding of how external expectations may impact their operations and either do not report relevant information on their concerns or fail to garner their trust. On the other hand, companies with effective engagement policies generally outperformed their competition amid the combined Covid-19 health and economic crisis and socio-environmental upheaval. Structured stakeholder engagement indeed spells the difference between corporate resilience and economic slumps. Why? Because unmediated access to local intelligence – via trusted stakeholders – determines a company’s ability to develop relevant risk management programs and monitoring processes.

Key Challenges in Structuring Stakeholder Engagement

Structured engagement also makes or breaks collaborative initiatives. A 2020 study estimates less than 15% of multi-stakeholder accountability, Human Rights and global governance initiatives involve rightsholders on their Boards. As a result, rightsholders are often excluded from the design or practical activation of monitoring, compliance and risk remediation processes. The alternative – top-down impact assessments – seldom addresses their issues and can backfire badly. For instance, recent regulatory efforts may have failed to include a rightsholders perspective and created a painstaking conflict-free mineral certification process. Businesses chose to bypass sourcing from the Democratic Republic of the Congo altogether. While few learned to trace their raw materials in the process, it drove prices down, forcing miners to find other ways to survive – including joining the armed groups the initiative sought to counter.

With these issues top of mind, Bonsucro sought out to take part in an outcome-based standard coalition based on a landscape approach to provide a scalable, scientific and collaborative approach to assessing and improving cross-sector voluntary sustainability standards. Working with the ISEAL Innovations Fund, the program is co-led by Bonsucro and the University of Minnesota. The project involves global corporate players Diageo, PepsiCo and Tetra Pak alongside the Roundtable on Sustainable Palm Oil and the Global Platform for Sustainable Natural Rubber. This partnership diversity is expected to play a central role in addressing 3 common challenges in developing voluntary but effective sustainability standards:

• Regardless of their fairly unassailable socio-environmental performance improvement and supply chain transparency goals, voluntary standards are all too often indexed on past impact.

• Voluntary sustainability standards seldom differentiate between different landscapes, so that thresholds and key performance indicators are often the same regardless of wherever they operate. As this program zeroes in on sugarcane, palm oil and rubber supply in South Africa, Mexico, Brazil, China, Malaysia, Indonesia and India, it must adapt to country-level variations – notably in terms of water stewardship, carbon storage or soil health.

• A third challenge arises from the increasingly mainstream expectation sustainability standards align with science-based targets and the Sustainable Development Goals, particularly on the part of commodity buyers. Given the relative stringency of these methodologies, partners must prioritize finite resources and focus on specific projects – say, water stewardship initiatives in India versus soil erosion in Indonesia.

These challenges are intrinsically tied to understanding stakeholder concerns, where they are coming from and with what amount of scientific and technical knowledge, in this instance.

Actionable Tactics Moving Forward

Both speakers converged, not just to stress the difficulty of structured stakeholder engagement but also on the tactics they rolled out despite working on very different projects.

Clarifying Engagement Goals

Novo Nordisk set out to address SDG 3 and contribute to healthy lives and wellbeing for all at all ages, notably by focusing on reducing premature deaths linked to chronic diseases by a third before 2030. As a result, the Group is developing an exploratory effort to better understand the links between companies and investors as they feed into ESG reporting. While their aspirations are clearly contingent, stakeholders approach health impacts very differently: the Group will for instance seek to demonstrate the superior effectiveness of its drugs compared to the competition, whereas a patient will more prosaically want to know how their medicine will help them improve their quality of life with as little adverse impact as possible for themselves (and perhaps their surrounding environment).

That is where stakeholder engagement comes in to build alignment on intermediary goals, meaningful metrics and adapted communication channels for various types of stakeholders. As a co-leader of the partnership, Bonsucro geared stakeholders toward prioritizing material issues to limit the risk of failure. As such, the outcome-based standards initiative agreed on a landscape approach to measure the impact of voluntary sustainability standards, qualify risks in supply chains, identify standard adaptations and reinforce policies to increase uptake.

A common purpose was found in documenting yield, water usage, nutrient loading, greenhouse gas emissions from cultivation and land conversion, land use change, habitat loss and economic costs. The partnership also plans to use geospatial science to explore the impact of different scenarios in near real-time and inform decision-making. Both Novo Nordisk and Bonsucro seek the moral affirmation of aligning with the Sustainable Development Goals and Science to build consensus – in goals and in means.

Developing New Formats to Build Trust

Voluntary sustainability standards aspire to a resoundingly clear business case to bolster their impact, whereas the ISEAL Innovations Fund caters to its network’s thought leadership. In the case of Novo Nordisk, the Group closely monitors how much drug sales and uses proxies to evaluate their reach. On another hand, investors expect quantifiable proof of Novo Nordisk’s positive impact to secure advantageous returns.

In both cases, stakeholders must all be brought to the same level of understanding. Nurturing trust, particularly on technical or contentious issues, calls for the development of flexible engagement formats. Looking back to its contentious encounter with non-profits, Novo Nordisk stressed the importance of picking up the phone, even in the era of social media, while Bonsucro offered one-on-one conversation to all partners to pinpoint their concerns and needs. Another core component of project management observed both by Novo Nordisk and Bonsucro is transparency, with open platforms to share real-time feedback and sustain alignment, even upon addressing potentially loaded issues.

That said, buyers seeking to mitigate their risk exposure and boost their resource efficiency are likely adverse to relinquishing data privacy rights. By contrast, fulfilling its public education remit implied the University of Minnesota would be adamant findings remain open source, so that complex intellectual property negotiations were inevitable. Bonsucro ultimately formalized 3 different sets of contracts to address stakeholder concerns across different sectors and legal jurisdictions.

Exploring Impact Measurement

In our highly-uncertain times, data proves essential for players to develop predictability as well as future-forward impact measurement.

What is so innovative about an outcome-based initiative (such as the one Bonsucro co-leads) is using spatially-explicit data to assess commodity risk management and remediation processes. Instead of extrapolating on past performance, partners access predictive models to compare the potential of risk mitigation mechanisms ranging from certification standards to deforestation-free commitments and impact financing. From there, they may redirect or reinforce future efforts in a cost-effective manner.

Data also drives greater transparency. The new frontier for pharmaceutical players like Novo Nordisk is to reduce data uncertainty by tapping into the highest possible granularity of information – like whether or not a patient is effectively taking their medicine or how they are affected. With artificial intelligence, the Group is moving a step closer to cross-referencing clinical trials and contextual information, to verify to what extent its drugs effectively move the needle toward healthy lives and wellbeing for all.

As with Bonsucro, data not only feeds reporting for reporting’s stake, it allows the Group to track stakeholder demands, weak signals as well as the next transformational change that will affect its entire business model. Looking ahead, this data is expected to help Novo Nordisk to conduct systemic interventions that include anything from prevention to personalized medical treatments with hyper-localized accuracy. Through insight into how their drugs impact people in their real-life settings, Novo Nordisk ultimately demonstrates actual value to investors.

Conclusion | It Comes Down to Common Purpose

Because of its major economic, socio-environmental and Human Rights implications, the global Covid-19 pandemic is likely to challenge stakeholders’ ability to find shared purpose and mutual trust.

To that effect, Ksapa works with global players across the board to refocus on common values, uphold commitments amid uncertain times and nurture trust all around. Through consulting and impact investment programs, our team offers methodological inputs for businesses and investors to address material issues and aggregate resources to build back better – with the swiftness, scale and impact our current crisis demands.