General Insurance Article - ESG catapults reputational risk into the top five

Corporate resilience to reputational issues is perceived to be falling, as board-level accountability declines. Companies must proactively assess new reputational risks, and their strategic and financial impacts, according to WTW’s latest Reputational Risk Readiness Survey Report.

 With ESG concerns rising to the top of corporate agendas, organizations are increasingly aware of the potential cost of reputational damage. However, as awareness increases, confidence in the risk management systems and crisis response capabilities has fallen since 2021, according to the 2023 Reputational Risk Readiness Survey Report released by WTW.

 The survey polled 375 senior executives from 20 countries, each responsible for risk strategy at their multi-billion-dollar global organization. Together their companies span the retail, manufacturing, leisure, transportation, and NGO sectors. The study found:
 • Environment, social, and governance risks are three of respondents’ top five reputational concerns (see chart).
 • Reputation is now a top-three risk for 26% of companies, up from 18% in 2021, and a top five risk for 55%.
 • 95% have a specific budget for reputational events.
 • Just 10% engaged monthly with stakeholders on reputation issues, down from 37% in 2021.
 • Only 14% link a formal governance process for reputation risks to board-level KPIs, down from 23% in 2021.
 • Only 13% said their resilience to reputational issues is very good, down from 23% in 2021.

 These findings represent a downgrading of risk management capabilities. However, it may be more of a reality check than a change in reality. As reputation risk is increasingly viewed through a finance and ESG lens, assessments of risk readiness are likely to be more rigorous and therefore less optimistic.

 Driven by the need to provide business partners, customers, regulators, investors, and lenders with their ESG credentials, reputation has become a financial risk. That development has changed attitudes towards reputation management. In response, finance departments now take a greater role. Three of five companies surveyed now have their senior financial controller as a member of their crisis event team. That’s up by nearly 50% from 2021.

 “Reputation management is changing with the world. The companies leading the reputation-risk maturity curve are those that think regularly and hard about the potential strategic and financial impacts of incidents and do so in the context of the evolving influence of ESG and social media,” says Hugo Wegbrans, WTW’s Global Head of Broking. “Companies should hold regular, formal, board-level discussions about reputational risks, and proactively assess not just the threats, but also the reputational opportunities that may come with a crisis. It’s quite possible to suffer a reputation event and come out of it looking even more favorable to customers.

 “At first glance, this wide-ranging survey seems to show that businesses are backsliding on reputational risk, but the reality is very much more nuanced,” Wegbrans continued. “As ESG concerns widen, especially in light of the explosion of social media, companies have begun to assess reputational risk more rigorously. That’s made them see reputation as a financial risk, not just a PR concern, and led them to increase budgets to deal with reputation crisis events. At the same time, though, they’re nervous of potential backlash events on social media, which may mean missed opportunities. It’s time for a new approach, and our survey shows that companies realise that.”

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