Businesses more aware of cost of reputation risk, WTW survey finds

Organisations are more aware of the potential cost of reputational damage and are preparing for the financial impact, but businesses are less sure of their risk identification, assessment and governance processes for reputation risk. This is according to WTW’s Counting the True Cost of Reputation and ESG risk: Reputational Risk Readiness Survey Report 2023. The report, which involved 375 senior executives from leading companies around the world, notes that reputation, which was previously widely regarded as a public relations problem, has begun to change, and issues closely linked to reputation, such as ESG, have moved to the centre of financial and business management, requiring a more proactive and strategic approach. “While executives feel they have the right people to manage reputational risks, their confidence in risk management systems and processes, and crisis management capabilities, has fallen since the first survey in late 2021, perhaps reflecting a reality check as assessments of reputation risk readiness become more rigorous. While social media is now seen as the most important means of communication, C-suite engagement with social media channels has dropped significantly. This caution may be related to fears of saying the wrong thing in an increasingly polarised political environment,” the report states. WTW stresses that reputation continues to rise up the business agenda. Reputation is now a top three risk in 26% of company risk registers (up from 18% in 2021) and a top five risk for 55%. But it adds that accountability for reputation risks has fallen, and while a majority of businesses have a formal governance process for reputation risks including ESG, only 14% link this to board level KPIs, down from 23% in 2021. At the same time, just 13% of respondents said their resilience to reputational issues such as ESG was very good, down from 23% in 2021, although 73% said resilience was good compared to 66% in our last survey. On the plus side, the report says 95% of respondents said their companies have a specific budget reserved to deal with a damaging reputational event, while 87% said they understood the cost of transferring reputational risk from their balance sheet. And 83% said they had either a good or very good understanding of the length and depth of a potential reputational crisis affecting their company. As for ESG, WTW notes: “Many of the issues that can tarnish a company’s reputation, from pollution and carbon emissions to pay inequality, discrimination and human rights abuses, are also critical ESG concerns. For many companies, the two now go hand in hand and are increasingly managed in tandem. By getting ESG issues right, they feel they are also well on the way to protecting and improving their reputation in the eyes of customer, stakeholders and potential employees.” WTW explains in the report that ESG is a growing driver of reputational risk, noting that governance (33%), environment (30%) and social issues (29%) occupied three of the top five positions in the list of reputation risks of most concern to businesses. Customer abuse (35%) and the threat of active assailant attacks (31%) were the other top concerns. The broker says increasing regulation, such as the EU’s Corporate Sustainability Reporting Directive, which will require companies to disclose and audit data on their impact on the environment and society, pressure to prove ESG credentials has become critical in business deals and is only likely to grow. More than a quarter of organisations (26%) now place reputation in the top three on their risk register, up from 18% in our last survey. This figure rose to 36% in Western Europe and was lowest at 5% in Latin America. And almost 60% of respondents said their board considered reputation and ESG issues at every meeting or most of the time. WTW concludes: “While there are major challenges ahead, we think organisations are taking a more realistic, business-minded approach to the issues involved and this should lead to a more mature phase of reputation risk management in the future.”

Businesses more aware of cost of reputation risk, WTW survey finds

But leaders less sure of risk identification, assessment and governance processes

Want to read this article?

Read Next

Risk managers taking centre stage in ESG

UK market must innovate rather than exclude emerging risks: BIBA

EC probes Meta for alleged breaches of Digital Services Act

Survey suggests risk management losing gains made since pandemic

Multinationals may seek to relocate supply chains to avoid ESG demands

Risk managers taking centre stage in ESG

UK market must innovate rather than exclude emerging risks: BIBA

EC probes Meta for alleged breaches of Digital Services Act

Survey suggests risk management losing gains made since pandemic

Multinationals may seek to relocate supply chains to avoid ESG demands

Want to read this article?

Read Next

Risk managers taking centre stage in ESG

UK market must innovate rather than exclude emerging risks: BIBA

EC probes Meta for alleged breaches of Digital Services Act

Survey suggests risk management losing gains made since pandemic

Multinationals may seek to relocate supply chains to avoid ESG demands

Related Articles