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Article

Tensions between Materiality Assessments and Stakeholder Engagements in Thai Corporate Sustainability Leaders

by
Farrell Tan
1 and
K. C. Dipendra
2,*
1
School of Global Studies, Thammasat University, Bangkok 10200, Thailand
2
College of Sustainability and Tourism, Ritsumeikan Asia Pacific University, Beppu 874-8577, Japan
*
Author to whom correspondence should be addressed.
Sustainability 2024, 16(17), 7711; https://doi.org/10.3390/su16177711
Submission received: 28 July 2024 / Revised: 27 August 2024 / Accepted: 30 August 2024 / Published: 5 September 2024
(This article belongs to the Section Economic and Business Aspects of Sustainability)
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Abstract

:
This study examines how leading Thai companies implement materiality assessments and stakeholder engagements in their sustainability reporting. While the Global Reporting Initiative (GRI) framework emphasizes these processes as being central to effective reporting, research on their concurrent implementation remains limited. Through a content analysis of GRI-aligned sustainability reports from top Thai firms, this study found that companies appear comprehensive in identifying material topics and stakeholders initially. However, a deeper analysis revealed primarily information-gathering approaches with stakeholders and limited disclosure of stakeholder impacts. Materiality assessments lacked clear information on how material issues affect both the organization and stakeholders. The findings indicate that materiality assessments are more rigorous than stakeholder engagement efforts in practice. This suggests that even when using stakeholder-focused standards like the GRI, actual stakeholder engagement may be superficial. Such superficial implementation of reporting standards potentially limits the ability of these standards to generate stakeholder engagement, which is an important pre-requisite for organizational transformation and accountability. This study contributes to understanding the practical application of these key reporting processes in an emerging market context. It highlights areas for improvement in corporate reporting practice and proposes directions for future research on enhancing the effectiveness of sustainability reporting.

1. Introduction

Private corporations have important roles to play in the context of sustainable development, given their role in resource consumption and degradation, and the resources accumulated can contribute to complex sustainability issues; they need to be guided by accountability mechanisms [1]. To improve corporate accountability, sustainability reporting standards were developed to help corporations communicate their various sustainability initiatives to their stakeholders. However, sustainability topics can be challenging to communicate. The interconnectedness of issues, multiple societal actors, the lack of a single root cause, and their cross-jurisdictional and temporal nature make it challenging to communicate how an organization fares across these issues to a broad stakeholder audience [2]. Frameworks such as the Global Reporting Initiative (GRI) were created with the intent that they would result in a more transparent, accountable, comparable, and complete disclosure process.
This study attempts to provide new perspectives of corporate disclosures from two core principles in the sustainability reporting process. The principles of materiality and stakeholder engagement have been studied previously as individual concepts [3,4,5], but less has been discovered on the linkages between these two concepts in the reporting process [6]. Some studies have examined stakeholder engagement as having a positive impact on materiality assessment [7,8], but, otherwise, research investigating the bi-directional influence of these two concepts is limited [6]. This study examines the relationship between these two concepts beyond the current understanding of it as integral processes of sustainability reporting [9]. The integration of these two processes has been identified to be a crucial processes for effective reporting, which ultimately results in organizational change to meet stakeholders’ expectations and needs [10]. Stakeholder engagements, as part of the materiality assessment process, can result in increased accountability by a corporation to its stakeholders, thus reducing the corporation’s ability to use disclosures to create its self-desired narrative [8,11].
This study probes the current state of materiality assessments and stakeholder engagement disclosures in Thai corporate sustainability leaders, and descriptively explores the relationship between the materiality assessments and stakeholder engagement behaviors in the study sample. Given the exploratory nature of this study, we use a self-developed evaluation framework to ascertain the quality of materiality assessments and stakeholder engagements as disclosed in the sustainability reports of the study sample.
The sample for this study involves a content analysis of the sustainability reports of nine Thai corporate sustainability leaders, selected for their simultaneous inclusion in S&P Global’s top 1% of corporate sustainability leaders and the Stock Exchange of Thailand’s (SET’s) list of sustainable investments. It was found that companies generally fared better in their materiality assessments than their stakeholder engagement processes. The disclosure patterns could also suggest legitimation attempts in the way their disclosures have been made, and some evidence of institutionalization is present in the reporting process. The discussion that ensues attempts to illustrate that materiality and stakeholder engagements, while perceived as overlapping concepts or having positively reinforcing effects, could reflect tense relationships instead. The remaining sections of this paper are set out in the following manner.
This paper is organized in six parts. The Literature Review (Section 2) follows the Introduction (Section 1). Section 3 provides the context of this study. Section 4 presents the methodology. In Section 5, the results are presented. Section 6 and Section 7 presents the discussion and conclusion respectively.

2. Literature Review

Sustainability disclosures can benefit corporations in a myriad of ways, ranging from increasing corporate reputation, increasing transparency and accountability, and improving employee motivation [12]. The information communicated can serve as a form of signaling to various stakeholders to improve their perception of the corporation. This information communicated also provides additional transparency on the operations of the corporation, in ways that current standalone financial reporting may not. Theories such as the Legitimacy Theory, Institutional Theory, and Stakeholder Theory are commonly used theories in the field of sustainability reporting research to explain the interactions between corporations, sustainability reporting, and society [13].
The Legitimacy Theory sees corporations attempting to attain legitimacy and maintain their ‘social contract’ with society, thereby adapting their method of operation to conform to the expectations set upon them by these ‘social contracts’ [14]. In the context of sustainability reporting, a corporation may be compelled to portray its performance, via its sustainability disclosures, over and beyond its actual underlying performance, as a way of maintaining this ‘social contract’ [15]. The legitimizing effect of disclosures was also corroborated by Cho and Patten (2007), as firms with a worse environmental performance had higher levels of disclosures [16]. These discrepancies lend support to the Legitimacy Theory, as disclosures are used to manage threats to a corporation’s ‘social contract’ with society. Although, a corporation’s legitimizing attempts are not limited to just the quantity and quality of disclosures, but also in using independent third-party validation such as assurance providers to strengthen legitimacy [17].
The Institutional Theory provides another perspective of how corporations progressively adjust their behaviors as a response to various institutional pressures [18]. Individual corporations can be subject to a variety of these forces individually or concurrently, with these forces influencing the quality of sustainability reporting [19,20]. In this instance, De Villiers and Alexander (2014) attempted to differentiate the effect between management intent and reporting frameworks on the outputs of sustainability reports, and found similar reporting patterns and structures, suggesting the professionalization of reporting frameworks [19]. In another study, industry and country-level differences are reflected in the sustainability reports; however, context-specific issues related to the operations of companies were not reflected [20]. These studies do lend support to the normative and mimetic pressures of the Institutional Theory, whereby the professionalization of sustainability reporting and benchmarking amongst peers drive the behaviors of corporations in the context of their sustainability disclosures. Another external force, coercive pressure, in the context of sustainability reporting, involves securities exchange and regulators imposing mandatory requirements for disclosures, and corporations adhering to the codes of conduct and governance regimes [21,22]. Yet, the transition from a voluntary to a mandatory regime may not necessarily improve the quality of disclosures, especially if the scope, depth, and levels of disclosure are left to the discretion of the companies [19].
Through the lens of the Stakeholder Theory, an organization’s objectives can be influenced by multiple stakeholder groups, and depending on the characteristics of the stakeholder, in areas such as power, legitimacy, and urgency, they could explain the varying levels of stakeholder engagement by the organization [23,24]. The process of sustainability reporting, via stakeholder mapping and engagement, can enable corporations to better manage stakeholder relationships and obtain legitimacy [5]. In addition to the stakeholder characteristics proposed by Freeman (1984) [23], Herremans et al. (2014) also found that sustainability reporting can be used as a tool to engage with stakeholders, with which the organization has a resource-dependent relationship [25]. In this case, the stakeholder engagement process required for sustainability reporting could be geared towards stakeholders that provide greater value to the organization. Amongst various stakeholder groups, investors and employees have been shown to have high levels of influence on the transparency of an organization’s disclosures [26]. This might suggest the dominance and prioritization of stakeholder groups with direct financial influence over an organization.

2.1. Materiality in Sustainability Reporting

Materiality is a key component used in sustainability reporting, employed to examine material topics that affect the impact on a company, its stakeholders, and broader society [27,28]. The materiality concept, as a focus of the GRI Standards, was intended to tackle the issue of corporate legitimization strategies by reducing managerial discretion and information overloads, while simultaneously providing information that is relevant to its stakeholders [6,29]. The materiality assessment process involves understanding the organization’s operating context, identifying the actual and potential impacts, assessing the significance of these impacts, before finally prioritizing the most significant impacts for reporting. Rigorous materiality assessments contribute to effective reporting, as stakeholders are able to act on the information provided by the corporation [29].
Although there are recommendations by the GRI Standards on determining materiality, the process in implementing materiality assessments, however, can be problematic. Machado et al. (2020) examined the transparency of 140 published sustainability reports following the GRI Standards and found that the identification process for material topics lacked transparency, while stakeholder engagement techniques can differ widely amongst the organizations [4]. This might suggest that despite the intent of providing transparency on an organization’s impacts, the actual outcome of improved transparency arising from the implementation of materiality assessments can still be debatable. In another study by Farooq et al. (2020), it was found that stronger corporate governance, as represented by greater board independence, has a positive impact on materiality disclosures [3]. The findings support the view that the presence of independent board directors could mitigate the effects of managerial capture, thereby improving the quality of materiality assessments.
Defining materiality can be highly subjective. If the materiality assessment process is conducted without a sufficient breadth of stakeholder inputs, it could result in the prioritization of financially material issues [9]. In the typical materiality assessment process, sustainability and business-related issues are ranked according to their importance. These issues can all arise from various social, environmental, and business contexts, and without a single unifying criteria to rank these issues, one would rely heavily on a corporation’s judgement [30]. This only adds to further tensions, as not only is the definition of materiality debated, the process of determining materiality itself also carries subjectivity. Obtaining a second opinion on materiality may not necessarily lend confidence to the materiality assessment process, as auditors and assurance providers can interpret sustainability and financial information differently [31].

2.2. Stakeholder Engagement in Sustainability Reporting

The GRI Standards define stakeholders as “business partners, civil society organizations, consumers, customers, employees and other workers, governments, local communities, non-governmental organizations, shareholders and other investors, suppliers, trade unions, and vulnerable groups” [32]. Guidance for stakeholder engagement is also provided, whereby “the purpose of stakeholder engagement can be, for example, to identify actual and potential impacts or to determine prevention and mitigation responses to potential negative impacts” [32]. Additionally, other sections in the GRI Standards also provide guidance on the rationale for stakeholder engagement, such as “due diligence focuses on identifying stakeholder interests that are or could be negatively affected by the organization’s activities” and “sometimes it is necessary to distinguish between stakeholders whose interests have been affected, and those whose interests have not yet been affected but could potentially be affected” [33]. Stakeholder engagement also has important contributions to effective reporting as corporations are engaged in a dialogue with stakeholders, followed by the internalization of stakeholders’ needs, and adjusting their performance to meet these needs [10].
The spirit of GRI’s guidance on stakeholders and engagement appears to be one that is of broad-based accountability, and is inclusive in terms of stakeholder groups, positive and negative impact, and current or potential impact [32,33]. From a reporting standards perspective, the materiality and stakeholder engagement guidance provides support for the GRI’s claim that its framework comprehensively captures an organization’s impact on various stakeholders and reflects the principle of inclusivity accurately [9].
Beyond just being a part of the sustainability reporting process, stakeholder engagement could also lay the foundation for enhancing mutual accountability between an organization and its stakeholders [34]. In practice, the depth of stakeholder engagements can vary. Manetti (2011) found that the dominant orientation of stakeholder engagement strategies was to monitor and gather information from stakeholders, rather than reflecting or highlighting the intrinsic value of stakeholders [5]. Stocker et al. (2019) also found that the dominant stakeholder engagement approached was largely an information strategy, although responding to the demands of stakeholders also featured prominently [35]. The process of stakeholder identification and engagement can also be problematic, due to limited organizational knowledge of stakeholders. This could be due to the wide range of stakeholders arising from the nature of sustainable development challenges, and a lack of understanding of stakeholder interrelatedness, all of which may contribute to ‘invisible’ stakeholders [36].

2.3. Relationship between Materiality Assessments and Stakeholder Engagements

Materiality assessments and stakeholder engagements are inherently linked within the sustainability reporting process [9]. Sustainability reporting, as a new form of governance mechanism for corporations, can be effective if corporations embed rigorous stakeholder engagement processes to identify relevant and material information [10]. Further, stakeholder engagements allow for a dialogue between the corporation and its stakeholders to prompt organizational change, which is impossible to achieve when using information transparency alone [11].
Some studies research the linkages between these concepts. For example, Torelli et al. (2019) found that the depth of stakeholder engagements has a positive effect on the materiality disclosures of companies [7]. Materiality was analyzed based on its breadth and depth, differentiating between an organization following the principles of materiality disclosures and those providing detailed descriptions of material issues. It is with a rigorous stakeholder engagement process that a company will uncover important material issues, thereby allowing it to present these material issues in a manner that is meaningful to users of its report. Guix et al. (2017) studied the application of AccountAbility’s AA1000 Stakeholder Engagement Standards for the 50 largest hotel groups against materiality assessments and found that the materiality assessment process is intrinsically linked to stakeholder engagement, with both processes being critical in contributing to an organization’s accountability to its stakeholders [8]. From a shared value creation perspective, a materiality assessment process that integrates robust stakeholder engagement practices could also help with managing material issues and creating value that is both relevant to the business and social stakeholders [37]. Collectively, this stream of research is identified with a positive reinforcing relationship between these two concepts.
Other research on these two concepts provides alternative perspectives on materiality assessment and stakeholder engagement, suggesting that there are underlying tensions in these concepts. Fasan and Mio (2015) researched the determinants of materiality assessment for companies adopting the International Integrated Reporting Framework’s (“IIRC’s”), examining factors such as the legal environment, industry, and board characteristics as a proxy for stakeholder engagement, against the relevance of materiality disclosures [38]. The study found that industry positively affects materiality disclosures, while board characteristics such as size and diversity negatively impact materiality disclosures, suggesting a theory of stakeholder conflict. This could mean that the materiality assessment process is more complex when broader groups of stakeholders are involved, increasing the difficulty for an organization to make decisions around materiality disclosures. In such contexts, it would be expected that intensive stakeholder engagements are less of a feature in how the organization determines its material issues.
While the GRI Standards encourage the demonstration of accountability to a company’s stakeholders [39], stakeholder mapping and materiality assessments could prioritize stakeholder engagements across domains such as power, legitimacy, and urgency, supporting the notion of tensions between corporate accountability and existing management approaches [40]. Different stakeholder groups can also have different levels of influence during the implementation of a company’s sustainability reporting efforts, and their exertion of this influence on the company could result in information disclosures that are important to them, rather than other stakeholder groups [26,41].
In summary, this account of the available literature suggests that stakeholder engagements do not reinforce the rigor and inclusivity required in materiality assessments. Acknowledging the polarizing perspectives on the relationship between materiality assessments and stakeholder engagement, and given the limited research on this relationship [42], this study will attempt to contribute to the discourse in these areas.

3. Context of This Study

The journey for sustainability reporting for Thai companies listed on the SET began on 1 January 2014, as companies were required to disclose their CSR activities [43]. Since then, there has been some academic research on the sustainability reporting behaviors of Thai companies. Chidchaya et al. (2022) examined the characteristics of the Board of Directors on Environmental, Social and Governance (ESG) disclosures and found that the size of the Board of Directors and the gender diversity of the board positively influenced a company’s ESG disclosures [44]. A similar study on the Board of Directors’ leadership and sustainability disclosures on companies listed on the SET was also completed by Jaturat et al. (2021), whereby board characteristics such as gender composition and the level of education would have an impact on the sustainability disclosures of a firm [45]. Using the Signaling Theory as the theoretical foundation, Sumritsakun (2022) explored the interconnectedness of sustainability reporting and financial accounting of Thai companies and found that sustainability disclosures have relevance for investors in enhancing their confidence in evaluating the book value of a company [46]. Contrasting with this study, Ratanacharoenchai et al. (2017) similarly relied on the theoretical foundations of information asymmetry to study the effects of sustainability disclosures on firm value for 425 listed Thai firms, and consequently investor’s returns [47]. In this instance, it was found that adopting the GRI reporting standards had a negative impact on firm value.
From a compliance perspective, listed Thai companies were observed to comply with sustainability reporting guidelines provided by the SET, while they were also in accordance with international best practices such as the Integrated Reporting principles [48]. In this instance, Thai companies demonstrated their ability to weave together business information with other areas such as corporate governance, respect for human rights, and contribution to social and environmental development. In another study, Wuttichindanon (2016) examined the determinants of CSR disclosures and found that factors such as government ownership and firm size had a positive impact on the level of CSR disclosures [43]. In a similar vein, Suttipun (2015) analyzed the drivers of sustainability disclosures such as company size, industry, ownership status, country of origin, auditor profile, and CSR awards, and found that company size, industry, and ownership status contributed to sustainability disclosures [49]. Focusing only on environmental disclosures, Suttipun and Stanton (2011) examined information disclosed by listed Thai companies and found correlations between environmental disclosures and company size [50]. The authors approached the findings from the perspective of the Legitimacy Theory, whereby the society, of which corporations are part of, would have greater expectations on larger-sized corporations and their accompanying impact on that society. Comparing the type of disclosures in listed companies in the home and office business sectors, Siriputtipornkul and Rungruangwuddikrai (2019) found that economic disclosures ranked first, followed by environmental and social disclosures in the third and final place [51].

4. Methodology

The sample of Thai companies has been chosen for their prominence in sustainability leadership. In S&P Global’s Sustainability Yearbook 2023, which features the top sustainable companies globally, 12 Thai companies were awarded a Gold Class distinction, which places these companies in the top 1% of their industry. S&P Global rankings incorporate an in-house Corporate Sustainability Assessment based on 80–120 industry-specific questions and this assessment is acknowledged amongst rating agencies for being the most forward-looking in terms of incorporating sustainability risks and opportunities, sector-specific perspectives of material economic, social and governance issues, and a high level of transparency [52]. The SET also compiles a list of companies, which form the Thailand Sustainable Investment (TSI) list, with companies voluntarily opting to participate in a sustainability exercise for inclusion on the list. A working group on sustainable investment screens the companies across economic, environmental, and social dimensions.
The companies that were awarded both a Gold Class distinction by S&P Global and are included on the TSI list are selected as the sample companies, due to the presumed dual assessment rigor conducted by both the SET and S&P Global, which recognizes their status as sustainability leaders. Companies that were not primarily listed on the SET or were subsidiaries of parent companies with standalone sustainability reports were excluded from this study. To standardize the analysis of the disclosures, only segments that have been disclosed according to the GRI Standards will be analyzed. For this study, the GRI disclosure standards are a focal point due to their emphasis on stakeholder inclusiveness relative to other disclosure standards [53]. The final list of companies included in the list for content analysis is presented in Table 1 below.
A content analysis of published sustainability reports was used as the method for this study, in line with research methods commonly used in sustainability reporting research [54]. The analysis of the contents of the reports involves evaluating disclosure elements against a self-developed scoring framework, according to the phenomena being targeted for investigation [3]. We have ascertained this approach to be reasonable, given the prior use of researcher-constructed frameworks to evaluate the quality of reports in prior sustainability reporting research [55,56,57,58]. For our research, the scoring framework (see Table 2) is developed to assess the quality of stakeholder engagement and materiality assessment disclosures. The stakeholder identification and engagement process attempt to determine the depth of an organization’s disclosures in identifying and profiling the stakeholder groups relevant to the organization. To measure inclusivity and accountability to its stakeholders, and the outcome quality of stakeholder engagements [8], the scoring framework also includes the organization’s positive and negative impact disclosures, and short-term and long-term impacts on its stakeholders [59]. These evaluation criteria can also provide an indication of the state of compliance with the GRI’s guidance on stakeholder engagement. Finally, the scoring framework also includes the depth of materiality identification, establishing links between the materiality issues and the organization, and establishing links between the materiality issues and stakeholder groups [8].

5. Results

The overall percentage scoring is presented in Table 3 below, segregated into the main category and sub-category scoring. The sub-category scores reflect the aggregated awarded score for each sustainability report assessed and expressed as a percentage of the total obtainable score (if each report scores a 2 for each sub-category). The main category scores are an average of scores in each of its component sub-categories. For example, “Impact to Stakeholders” consists of sub-categories “Positive impact to stakeholders”, “Negative impact to stakeholders”, “Long-term impact to stakeholders”, and “Short-term impact to stakeholders”.
The sample of companies fared the strongest in the category for identifying materiality issues, and as a minimum standard, all the reports provided the criteria for identifying material issues. Companies also generally provided a list of stakeholders that are relevant to the firm, with some disclosures referring to the “issues of interest” of each stakeholder group and disclosing the organization’s response to these issues. Contrasting with how companies identified material issues, the stakeholder identification process was significantly less transparent, although all the reports disclosed a list of stakeholders relevant to the organization. Out of the sample companies, four did not disclose how their stakeholders were identified.
Notable examples of detailed and rigorous stakeholder identification methods could be seen from Asset World Corporation, which identified stakeholder relevance based on dependency, responsibility, tension, influence, power, and diverse perspectives [60], while Berli Jucker identifies stakeholders based on their dependency and influence on the organization, with an additional governance layer of a Sustainable Development Committee to approve the stakeholder categorization [61]. PTT Global Chemical used a stakeholder influence–interest matrix, and suggested its prioritization of stakeholders that were high on both influence and interest scales [62]. Stakeholder identification could also be made based on the individual business lines, as with the case of Thai Oil, which identifies stakeholder groups based on their relevance to its supply chain, from crude oil procurement to post-utilization [63]. In other instances, such as with Home Product, the stakeholder identification methods appeared less transparent, whereby the company determined the key stakeholders by incorporating stakeholders’ interests and concerns into the business framework and sustainable development issues [64].
The disclosures for the stakeholder engagement category were fairly comprehensive, as disclosures also included the engagement channels with these groups such as via surveys, meetings, social media platforms, call centers, and press conferences. However, the overall impression was that these engagement channels largely resembled an information gathering approach, rather than a consultative or decision-making approach, except for two companies: PTT Global Chemical and Thai Union group. PTT Global Chemical mentioned the use of external expert consultation for sustainability issues, while Thai Union expressed that they were engaged with academia and other global seafood companies to tackle the issue of global plastics, and they were engaging external consultants to conduct a review of their customers’ sustainability commitments [65].
Overall, disclosures for impact to stakeholders were the lowest across all the main categories at 25.0%, and this was also largely driven by the disclosures for positive impact in the sub-category. Companies appeared to be more proactive in disclosing their positive impact relative to their negative impact. Disclosures of positive impact though, largely revolved around the companies’ charitable contributions, with commonly used techniques such as disclosing monetary amounts of charitable donations, employee volunteering hours, or in-kind contributions expressed in monetary terms. In one instance, Siam Cement disclosed that their involvements with community enterprises resulted in additional income for the community and other community enterprises [66]. Disclosures of negative impact were limited, and even in cases where negative impact was disclosed, the disclosures were largely descriptive and brief. In the case of Thai Oil, there were displays of awareness of negative impacts to stakeholders, but even so, these disclosures appeared to suggest the organization’s awareness of negative impact, rather than any actual initiatives undertaken to manage these negative impacts. Between long and short-term impact, companies disclosed more long-term impact than short-term impact. These disclosures were largely general, reflecting the organization’s awareness of the potential long-term impacts, as with the case of Home Product Center, which described its intention to promote long-term sustainable growth for the community environment. There were no overall impressions of any disclosures related to short-term impact from the organizations in the sample.
The overall scoring of 64.8% for the materiality assessment was largely driven by strong scoring for the identification of materiality issue at 100%. The assessment considered the rigor of identification of materiality issues based on the number of criteria used to evaluate materiality issues. In the example of BTS Group Holdings, materiality issues were determined by criteria such as international standards, competitor benchmarking, media reports, global trends, and the United Nations Sustainable Development Goals [67], while VGI employed the criteria of economic, social, and environmental risks and opportunities, global trends, stakeholder opinions, and sustainability issues of concern in the industry [68]. Following the examination of how the organizations identified their material issues, the depth of the disclosures for the material issues was also examined. In this aspect, the overall scoring of 55.6% was significantly lower than that for how companies disclosed their materiality identification methods. The companies generally only disclosed the list of their material issues, without demonstrating how these material issues impacted the organization or its stakeholders. Only in one instance, for PTT Global Chemical, were the material issues differentiated into positive and negative impacts. In establishing links between the material issues and how it impacts the various stakeholder groups, disclosures were generally low, with an aggregate score of 33.3% across the organizations. PTT Global Chemical’s disclosure on this topic stood out, as it attempted to represent how each of the material topics impacted the various stakeholder groups, with proportions of the impact provided. The methods behind their attempt were not disclosed, but its portrayal of the impact of material topics on various stakeholder groups stood out amongst the companies in the sample. The materiality matrix used to identify material topics can be generally segmented into two groups. The first group used a matrix measuring the importance to stakeholders and the organization, while another group used a matrix measuring the importance to stakeholders and economic, social, and environmental impact.
The aggregation of the scores, shown in Table 4 and Figure 1, is presented below. The calculation for depth of stakeholder engagement includes the scoring for stakeholder identification, engagement, and impact, while the materiality assessment dimension includes the scoring for identification, depth, and linkages to stakeholders.
It is observed that companies were scoring better on the materiality assessments compared to the stakeholder engagement sections, and aside from an outlier in PTT Global Chemical, the remaining eight companies are somewhat aggregated around a similar region, demonstrating rather similar performances in ratings in the stakeholder engagement and materiality assessment dimensions. The sample is small and insufficient for generalizing or suggesting a relationship between stakeholder engagement and materiality assessments, but it could point towards future directions for research as discussed in later sections.
Additionally, an examination of the materiality assessment criteria was completed. The total number of criteria is 40, and an attempt was made to categorize the different criteria into broader categories. The breakdown of the categorization, with examples of criteria included in the categories, is in the table below (Table 5). Evident from the results are the dominant approaches for determining material issues, with industry trends, internal organization factors, stakeholders, and global trends representing the majority of criteria used for determining materiality.
Overall, the findings demonstrate that the sample companies were comprehensive in identifying stakeholders and material topics, but they lack depth when it came to quantifying the impact on stakeholders and how the material issues affected the organization and its stakeholders. The stronger scoring for materiality assessments could also suggest that the companies were compliant with the guidance provided by GRI’s materiality assessment, rather than the guidance provided in stakeholder engagements.

6. Discussion

The obtained scores might be indicative of a few trends. At the first level of identifying stakeholders and material issues, disclosures were generally extensive, demonstrating breadth in highlighting stakeholders and material issues that are relevant to the organization. However, in examining the depth of these two fields, the scoring begins to decrease. Progressing from stakeholder identification to engagement, and finally to impact to stakeholders, the disclosure quality deteriorates. Similarly for the materiality assessment category, progressing deeper from identifying material topics to the depth of disclosure, and the impact of material issues and stakeholders, there is also the corresponding decrease in disclosure quality. This may suggest that the implementation of the materiality assessment process is a tick-box exercise, rather than portraying tense topics between stakeholders, and trade-offs across the economic, social, and environmental dimensions, which might allow for better transparency and accountability to stakeholders [2].
The stronger presence of disclosures of positive impact relative to their negative impact might suggest the use of legitimizing actions to maintain a corporate’s ‘social contract’, whereby organizations disclose in a manner that creates a perception amongst its stakeholder base [14]. This is despite the view that disclosing negative information could have some benefits. Firstly, the disclosure of negative information could help with reducing the magnitude of investors’ uncertainty in modeling the impact of negative sustainability-related issues on future cash flows, thus having a positive impact on the cost of capital [69]. Secondly, the lack of information transparency could lead stakeholders to perceive that there is an irreconcilable gap in information asymmetry, and thus cease their relationship with the company altogether [70].
In identifying material topics, there appears to be some aggregation in the main categories employed, such as industry trends, internal organization factors, stakeholders, and global trends. This might suggest the existence of institutionalization in the sustainability reporting process, whereby, over time, organizations employ similar techniques and processes [71]. The sample reports have shown that the linkages between material issues and their impact on stakeholder groups lacks transparency. For a report user, without being able to see these linkages, it could be challenging to understand how a corporation balances the demands of conflicting stakeholder groups and the trade-offs that are being made [8]. The overall lack of depth in the materiality assessment and stakeholder engagement sections could also be reflective of managerial capture [3]. Despite the intent of the GRI G4 principles to focus on materiality to better address material topics relevant to stakeholders, the superficial application of materiality assessments without a rigorous stakeholder engagement could mean that the materiality assessment process becomes another legitimizing tool, as companies disclose broad information to conform to societal expectations [29].
On the basis that stakeholder engagement and materiality assessments are highly intertwined and could positively reinforce each other in their implementation [7,8,9,30,31], we might expect that these two variables in the study sample demonstrate a clear positive relationship. The stronger materiality assessments scores, relative to stakeholder engagement, in the study sample could provide new perspectives of how these variables are interrelated. In this case, the rigorous application of materiality assessments could instead restrict stakeholder engagement and inclusiveness beyond the superficial compliance of sustainability reporting standards. Under such circumstances, companies focus only on the issues that are material to the organization and key stakeholder groups. This perspective follows Puroila and Mäkelä (2016) closely in that the rigorous application of materiality assessments and focusing on the measurable aspects might exclude other sustainability issues that are highly complex and can have effects across multiple timeframes [30]. The findings might also support Clifton and Amran (2010), in that stakeholder engagements are prioritized based on the power and legitimacy of stakeholder groups rather than being inclusive as required by the sustainability reporting process [40].
From another perspective, tensions could exist between top–down approaches, in the adopting of reporting standards such as the GRI and adhering to protocols and processes, and bottom–up approaches, such as reflecting the needs on-the-ground [72]. This top–down and bottom–up perspective could be reflective of the materiality assessment and stakeholder engagement processes, respectively. The rigorous adherence to guidance provided by the GRI could be taking precedence over stakeholder engagement to identify needs on-the-ground. Although stakeholders were also a criterion in the materiality assessment process, the disclosures hardly reflected the depth of these engagements, such as if they were information, response, or involvement types of engagements [35]. This top–down approach would be in contrast with a bottom–up approach, where stakeholder engagement embodies pluralism and encourages stakeholder sharing, participation, and involvement [34].
Stakeholder engagement, as an intended process for corporate accountability, could gradually over time be restricted due to certain stakeholder attributes such as their power, relation to other stakeholders, and the organization [73]. The lower stakeholder engagement ratings could also be supportive of Lindgren et al. (2020), in that companies adopting a stakeholder-focused reporting framework may not necessarily be stakeholder-oriented, instead focusing on shareholders still [74]. This business case approach, which focuses on shareholders, as opposed to a stakeholder-accountable approach, could eventually further strengthen existing power imbalances between corporations and society [75].
Perhaps, a reason for the tension between materiality assessments and stakeholder engagements could lie within the reporting process itself. The GRI’s guidance on stakeholder engagement and its attempt to empower stakeholders could be a reason for the tension between stakeholder inclusivity and organizational decision making around materiality assessments. The GRI Standards do provide a caveat around stakeholder engagements, stating that “the organization can explain how it determines which categories of stakeholders to engage with and which categories not to engage with” [32]. With such disclosure leeway, the original spirit of the GRI Standard’s accountability and inclusivity could be restricted by the implementation of the stakeholder engagement process. The statement could place disclosure discretion back in the hands of the corporation, within the overarching principle of materiality, effectively legitimizing the decision-making trade-offs between meeting the requirements of powerful stakeholders or driving actual sustainability contributions [76]. According to Guix et al. (2017), the maximization of organizational accountability relies on the quality of an organization’s engagements with its stakeholders, its ability to prioritize stakeholder demands and manage trade-offs, and the internalization of stakeholder demands in shaping organizational behavior [8]. On this basis, the quality of materiality disclosures of the sample reports might be reflective of the sample organizations prioritizing some key stakeholder interests via the materiality assessment process. If so, we might expect that true stakeholder accountability would be quite limited.
Although this exploratory study contributes some insights, the following limitations are acknowledged. The interpretation-focused scoring method may yield different results compared to quantitative techniques such as word and sentence counts, which could provide more objective measures of the specific criteria being evaluated [58]. The sample size represents only a small fraction of the listed Thai companies, which were selected based on their prominence in external corporate sustainability evaluations. This limited sample makes it challenging to generalize the findings to represent the broader sustainability reporting practices of Thai companies. Furthermore, the small sample size precludes consideration of other potentially influential contextual factors, such as industry-specific characteristics and organizational performance [43,49,51]. We also acknowledge the exploratory nature of our evaluation framework and call on fellow researchers to strengthen the development our framework to better assess the quality of materiality assessments and stakeholder engagements.

7. Conclusions

The content analysis of the Thai corporate sustainability leaders showed that, on some levels, materiality assessments and stakeholder identification are reflected in the disclosures. However, disclosure quality around how the sample corporations engage stakeholders, disclose their impacts on stakeholders, and link material issues to stakeholders is low. Another interpretation of the findings, and perhaps suggesting new avenues of research, is if the rigorous application of materiality assessments contributes to the lack of depth in stakeholder engagement beyond superficial compliance with reporting standards, as companies prioritize the information demands of key stakeholders rather than implementing inclusive stakeholder engagement approaches [26]. Without the requisite stakeholder engagement and internalization of stakeholders’ concerns as part of the reporting process, it raises the question of how sustainability reporting can prompt corporations to orient themselves towards more sustainable practices [10]. The requirement to disclose information needs to be accompanied with the engagement of stakeholders to improve the effectiveness of reporting as a mechanism for governance and accountability [11]. The findings contribute to the discourse that examines relationships between materiality assessments and stakeholder engagement, whether as tensioned or reinforcing concepts [26,41,42]. The lack of academic consensus justifies further research, given that these processes contribute to effective reporting and organizational accountability to stakeholders [8].
Future iterations of this study could also focus on specific industries, which may be persistently exposed to critical social issues such as human rights violations [77,78]. A study involving such a sample could examine the magnitude of the disconnect between how these companies represent their materiality assessments and stakeholder engagement efforts. A study sample involving companies from other regions could also provide new insights into contextual factors, such as political, regulatory, or cultural factors, which could influence how companies integrate stakeholder engagements into their materiality assessments. Other components such as external assurance could also be examined in relation to how third parties provide assurance on the quality of a company’s materiality assessments and stakeholder engagement efforts.

Author Contributions

Conceptualization, F.T. and K.C.D.; methodology, F.T.; validation, F.T. and K.C.D.; formal analysis, F.T.; investigation, F.T. and K.C.D.; resources, F.T. and K.C.D.; data curation, F.T.; writing—original draft preparation, F.T.; writing—review and editing, F.T. and K.C.D.; visualization, F.T.; supervision, K.C.D.; and funding acquisition, K.C.D. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

The raw data supporting the conclusions of this article will be made available by the authors on request.

Conflicts of Interest

The authors declare no conflicts of interest.

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Sustainability 16 07711 g001
Figure 1. Stakeholder engagement–materiality assessment mapping.
Figure 1. Stakeholder engagement–materiality assessment mapping.
Sustainability 16 07711 g001
Table 1. Companies in study sample.
Table 1. Companies in study sample.
Stock SymbolNameIndustry (as Classified by SET)Report YearReport Framework
AWCAsset World CorporationProperty and Construction2021GRI
BJCBerli JuckerServices2021GRI
BTSBTS Group HoldingsServices2021GRI
HMPROHome Product CenterServices2021GRI
PTTGCPTT Global ChemicalIndustrials2021GRI and IR
SCCThe Siam Cement Public CompanyProperty and Construction2021GRI
TOPThai Oil Public Company LimitedResources2022GRI and IR
TUThai Union GroupAgro and Food Industry2021GRI
VGIVGIServices2021GRI
Table 2. Scoring framework for content analysis.
Table 2. Scoring framework for content analysis.
CategoryObjectiveScoring Framework
Stakeholder IdentificationOrganization’s process in identifying relevant stakeholders [8]0—No disclosure
1—Identification of stakeholder groups, with superficial descriptions of their relevance to the organization
2—Comprehensive list including criteria for stakeholder identification, and providing rationale for the relevance of each stakeholder group to the organization
Stakeholder Engagement ProcessDepth of the organization’s stakeholder engagement process [5]0—No disclosure
1—Process reflects an information gathering approach
2—Process reflects a consultative and/or decision-making approach, signifying organizational intent in engaging stakeholder groups in bi-directional communication
Impact to Stakeholders Positive impact to stakeholders [59]0—No disclosure
1—Describes positive impact to stakeholders, occasional quantification of positive impact
2—Comprehensively describes and quantifies positive impact to stakeholders
Impact to StakeholdersNegative impact to stakeholders [59]0—No disclosure
1—Describes negative impact to stakeholders, occasional quantification of negative impact
2—Comprehensively describes and quantifies negative impact to stakeholders
Impact to StakeholdersLong-term impact to stakeholders [59]0—No disclosure
1—Demonstrates the consideration of positive and/or negative long-term impact to stakeholders
2—Demonstrates strong commitment to managing positive and/or negative long-term impact to stakeholders
Impact to StakeholdersShort-term impact to stakeholders [32]0—No disclosure
1—Demonstrates the consideration of positive and/or negative short-term impact to stakeholders
2—Demonstrates strong commitment to managing positive and/or negative short-term impact to stakeholders
Materiality AssessmentIdentification of material issues [7]0—No disclosure
1—Identifies material issues based on a narrow set of criteria (1–3)
2—Identifies material issues based on a comprehensive set of criteria (more than 3)
Materiality AssessmentDisclosure on material issues [7]0—No disclosure
1—Provides a list of material issues
2—Provides a comprehensive list of how the material issues impact the organization
Materiality AssessmentLinks between material issues to stakeholder interests [8] 0—No disclosure
1—Describes the material issues and their relevance to stakeholder groups
2—Provides a comprehensive analysis on how material issues can impact stakeholder groups
Table 3. Main and sub-category scoring (aggregated scoring).
Table 3. Main and sub-category scoring (aggregated scoring).
Main CategorySub-CategorySub-Category Scoring (%)Main Category Scoring (%)
Stakeholder IdentificationProcess in identifying stakeholders relevant to the firm72.2%72.2%
Stakeholder EngagementStakeholder engagement process61.1%61.1%
Impact to StakeholdersDisclosures on positive impact44.4%25.0%
Disclosures on negative impact16.7%
Disclosures on long-term impact38.9%
Disclosures on short-term impact0.0%
Materiality AssessmentIdentification of materiality issues100.0%64.8%
Depth of disclosure of materiality issues55.6%
Linkages between material issues to stakeholders38.9%
Table 4. Company stakeholder engagement and materiality assessment scoring.
Table 4. Company stakeholder engagement and materiality assessment scoring.
CompanyDepth of Stakeholder EngagementDepth of Materiality Assessment
Asset World Corporation42%50%
Berli Jucker42%67%
BTS Group25%67%
Home Product Center33%67%
PTT Global Chemical58%100%
Siam Cement33%67%
Thai Oil42%50%
Thai Union42%67%
VGI33%50%
Table 5. Categories for materiality assessments in study sample.
Table 5. Categories for materiality assessments in study sample.
CategoriesExamplesCountPercentage of Total
Industry trendsReal estate and hospitality industry approaches, industry peers, and benchmarking against competitors in the industry1025.0%
Internal organization factorsInternal SWOT analysis, reviewing activities and partnerships, and internal business operations615.0%
StakeholdersAnticipations from stakeholders, stakeholder expectations, and a survey of the stakeholders615.0%
Global trendsBenchmarking against global trends512.5%
CustomersChange in consumer behavior and customer preferences and feedback37.5%
RisksEmerging risks and risk indicators37.5%
MediaStudying media reports and media profile and risk25.0%
UN SDGsUN SDGs25.0%
Global standardsGlobal standards25.0%
LegislationLegislation12.5%
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Tan, F.; Dipendra, K.C. Tensions between Materiality Assessments and Stakeholder Engagements in Thai Corporate Sustainability Leaders. Sustainability 2024, 16, 7711. https://doi.org/10.3390/su16177711

AMA Style

Tan F, Dipendra KC. Tensions between Materiality Assessments and Stakeholder Engagements in Thai Corporate Sustainability Leaders. Sustainability. 2024; 16(17):7711. https://doi.org/10.3390/su16177711

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Tan, Farrell, and K. C. Dipendra. 2024. "Tensions between Materiality Assessments and Stakeholder Engagements in Thai Corporate Sustainability Leaders" Sustainability 16, no. 17: 7711. https://doi.org/10.3390/su16177711

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