When examining environmental, social, and corporate governance (ESG) issues, we typically rely on the insights of internal and external stakeholders. Internal groups such as employees, CEOs, sustainability teams, and suppliers will select key ESG issues based on the company's current situation and strategic goals, and reach consensus. Despite the subjective nature of this process, it enjoys a high level of recognition within the organization. In contrast, the perspectives of external stakeholders are more diverse and complex, and their viewpoints are easily influenced by personal beliefs, social norms, and media orientation, which may lead to cognitive biases or misunderstandings.
To clarify the importance of ESG issues, we often use the matrix method to quantitatively evaluate the potential financial impact of internal and external stakeholders on ESG issues and the long-term impact on humanity and the planet. This matrix takes financial impact as the vertical axis and human and earth impact as the horizontal axis, while considering both short-term and long-term effects, becoming a guiding beacon for formulating strategies and decisions.
However, external stakeholders often face the challenge of a "cognitive reality gap", where their understanding of sustainable development often deviates from the actual situation. For example, recycling is widely regarded as an environmental priority globally, but in reality, it only ranks 60th in terms of emission reduction effectiveness. Such misunderstandings may lead companies to formulate strategies based on erroneous perceptions, thereby falling into the risk of "greenwashing" and strategic dissonance.
To mitigate this risk, traditional approaches adopt more refined research methods, which only allow external stakeholders to provide feedback on a subset of ESG issues that are most relevant to their roles. For example, technical experts are better at answering AI ethical questions, while industry experts are more proficient in supply chain issues. This strategy aims to enhance the credibility and accuracy of feedback, and avoid external stakeholders making misleading assumptions about unrelated issues.
Although this method has to some extent improved the credibility and participation of research, it has also raised new challenges: how to allocate weights to results based on stakeholder foundations? The viewpoints and interests of different stakeholders are diverse and even conflicting. How to balance these differences and ensure the fairness and objectivity of the evaluation results has become an urgent problem to be solved.
Moreover, even with meticulous research, the gap between cognition and reality cannot be completely eliminated. There is a widespread misunderstanding among the public about ESG issues, which may lead companies to deviate from the right track when choosing ESG issues and ignore key information disclosures that are difficult to detect internally. For example, stakeholders may find it difficult to make accurate judgments due to varying levels of ESG expertise; The interest driven group of corporate investors may drive internal sustainable development changes, but sometimes these changes are too tailored to the needs of institutional investors and ignore the voices of other stakeholders.
To address these challenges, we need to adopt a more comprehensive and in-depth evaluation method - dual materiality. This method emphasizes that when evaluating ESG issues, it is necessary to consider the perceptions and expectations of stakeholders, as well as to combine actual situations and scientific data to ensure the accuracy and reliability of the evaluation results.
Firstly, the selection of ESG issues should not be limited to internal decision-making, but should be audited from a broader perspective and resources. This includes following the guidance principles of organizations such as the Corporate Sustainability Reporting Directive (CSRD), the Global Reporting Initiative (GRI), and the International Sustainability Standards Board (ISSB) to ensure that the assessment process is aligned with international standards and best practices.
Secondly, when developing an ESG agenda, global consumer trends and industry characteristics should be fully considered. By auditing global consumer trends, companies can establish a list of issues that includes basic ESG hygiene factors. For example, the Ipsos Global Reputation Monitor (IGRM) survey provides a consumer perspective on E, S, and G health factors, which can serve as an important reference for developing ESG issue lists.
However, relying solely on perceptual data is not sufficient. To fill the gap and ensure the comprehensiveness of the ESG agenda, external data and competitive analysis are also needed. By conducting in-depth research on the actual hygiene factors of the industry to which the company belongs, it is possible to identify ESG issues that may have been overlooked but are crucial. For example, by comparing the ESG performance of other companies in the same industry, one can identify areas where they have weaknesses and room for improvement.
Finally, at the collaborative seminar, internal stakeholders utilized auxiliary data and evidence to refine the ESG agenda. This process requires sufficient communication and collaboration to ensure that all parties' opinions are fully expressed and respected. At the same time, maintain an open and inclusive attitude, accept feedback and suggestions from different stakeholders, and continuously optimize the ESG agenda.
When implementing a dual substantive evaluation, the following points should also be noted:
Maintain objectivity and impartiality: When evaluating ESG issues, scientific methods and standards should be followed to avoid subjective speculation and bias. At the same time, ensure that the evaluation results are open and transparent, and subject to social supervision.
Balancing the interests of all parties: When formulating ESG strategies and decisions, it is necessary to fully consider the needs and demands of different stakeholders. Through communication and negotiation, seek a solution that is acceptable to all parties.
Continuous learning and improvement: With the development and changes in the ESG field, it is necessary to constantly update and improve evaluation methods and tools. Through continuous learning and practice, improve the accuracy and effectiveness of assessments.
Strengthen cooperation and communication: Strengthen cooperation and communication with domestic and foreign peers, research institutions, and social organizations to jointly promote the development and progress of the ESG field. By sharing experiences and resources, we can achieve mutual benefit and win-win outcomes.
In summary, although perception based importance assessment has reference value, it also faces many challenges and risks. To reduce these risks, we need to adopt a more comprehensive and in-depth evaluation method - dual materiality. By combining stakeholders' perceptions and expectations with actual situations and scientific data, the accuracy and reliability of ESG assessment results can be ensured, providing solid support for the sustainable development of enterprises.