By Luke Thompson on 14/07/2022
Luke Thompson, a Consultant in Powerscourt’s Crisis and Special Situations practice, looks at the reputational pitfalls related to ESG issues, and explains the importance of being prepared
A report by Deloitte found that 87% of executives believe that reputational risk is more important than any other strategic risks and it is clear execs now have a greater understanding that the reputations of even the most highly regarded businesses can be affected by a seemingly minor crisis event. They also appreciate that in today’s world, having a strong corporate reputation is intrinsically linked to the long-term commercial performance of their business. The reputation risk landscape however is becoming increasingly complex and challenging, exacerbated by the ever-widening range of risk factors and the speed at which they can evolve, fuelled by 24-hour news and social media.
Companies should be planning not only for the more ‘traditional’ crisis events – but for issue-based risks relating to ESG standards. The rise of ESG and the importance of companies working towards social goals that go beyond corporate interest has created an additional layer of complexity that companies cannot afford to neglect.
As scrutiny levels from all stakeholder groups increase, poor performance or the mismanagement of an ESG-related issue is becoming one of the primary reputational risk issues for businesses.
A negative issue can often cause more reputational harm than traditional crisis events, such as a cyber incident or a product recall and can cause death by a thousand cuts, rather than a single blow. It can be persistent in nature and evolve over a long period (months and years), with the potential to morph into something much bigger and, once this starts, it can be very difficult to stop and then reverse. Reputational issues have the potential to undermine the long-term credibility and integrity of the business – and those who run it, such as the recent issues within Boohoo’s supply chain dating back to 2020, when the fast fashion e-commerce retailer came under scrutiny for poor treatment and underpayment of garment workers. Or, on a bigger scale, the issues of privacy and harmful content that have caused severe reputational headwinds for Meta over the last decade.
This is where execs should focus their attention and investment in planning terms. A well-rounded crisis plan will account for traditional risks such as cyber and ransomware attacks, as well as longer term issue-based risks, such as falling foul of ESG obligations.
It shouldn’t just account for current risks, but should consider those on the horizon.
CEOs should think about their blind spots and the issues that keep them awake at night, because it’s those that could land the biggest blow.
Those who are the most prepared are the best placed to respond and mitigate any reputational damage. They will be the ones who acknowledge their exposure to reputational risks – and then take meaningful action and investment to prepare for them.
We are a business built on supporting organisations through times of stress, crisis, and change, with its own specialist crisis team. We have a long record of working with high-profile businesses across a range of sectors and jurisdictions throughout the full life cycle of crisis and issues management, including pre-crisis planning, live crisis management, and crisis remediation.
If you are looking for advice on a reputation issue or are interested in hearing more about our work in this area, please contact Powerscourt’s Special Situations team on +44 (0)20 7250 1446 or email@example.com.