Reputation risk and ESG: An evolving picture

Managing the potential threats to reputation is near the top of most c-suites’ agendas and most companies’ risk registers. At the same time, companies across all industries are embedding and enhancing their ESG policies. The need to get this right, and the increased scrutiny from stakeholders means that managing and mitigating reputation risk has become even more of a priority for many companies. Heyrick Bond Gunning, CEO of global intelligence and cybersecurity consultancy S-RM, Rebecca Curtin and Natalie Gregory, both senior underwriters at AXA XL, explain to Commercial Risk’s Adrian Ladbury the ways in which clients can keep up to speed with this evolving area of risk.

In the words of legendary investor Warren Buffet: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

It has become clear that reputation risk is now very much on the radar of c-suites and risk management teams.

The prevalence of social media and the speed at which information, or misinformation, can be spread means that companies are becoming increasingly vigilant about the threats to their reputation and the need to assess, mitigate and manage those risks before they materialise. An increased emphasis on companies’ ESG practices has given greater impetus to the need to manage reputation. The pandemic only sharpened this focus, according to Rebecca Curtin, senior underwriter at AXA XL.

“In the past few years, ESG has risen up the corporate agenda and is now a strategic priority for companies across all industries. Over the course of the Covid-19 pandemic, stakeholders – be they clients, shareholders, employees or others – have placed even greater importance on the ESG practices of the companies they interact with. The pandemic made many of us reconsider the ways in which we work, live, eat, travel and so on,” she explains.

TRANSPARENCY

ESG is, by its nature, inextricably linked to reputation. ESG policies are effectively pledges to act in certain ways, to uphold certain standards of corporate behaviour and best practice, for the good of the environment and society. And this extends to supply chains too.

“Greater transparency means that stakeholders can easily access information about labour issues in a supply chain, or the amount of single-use plastic thrown away by a company’s suppliers, for example. Getting this wrong can have major consequences. Reputation risk management must, therefore, be viewed through an ESG lens – from the outset,” says Natalie Gregory, senior underwriter at AXA XL.

As the old cliché goes and as every risk manager knows, prevention is better than cure. It is important to get ahead of situations, to prevent them from developing into a crisis, where possible. It is also important to have crisis management plans in place should a situation unfold, and these plans should be updated and rehearsed regularly.

“When we work with clients to help them manage their reputation risks, we perform a deep dive into their company’s operations, to identify potential issues and to put in place measures to prevent problems happening,” explains Curtin.

“But this is not a one-time solution. Situations can change – sometimes overnight. The rapidity with which certain situations can escalate, whether for geopolitical, social, environmental or other reasons, means that companies must be alert to the changing threat levels and potential risks,” she adds.

ONE STEP AHEAD

S-RM, the global intelligence and cyber security consultancy that supports AXA XL’s reputational risk insurance solution, monitors political and sanctions developments around the world. While this has typically been necessary in developing economies, recent events in Europe have underscored the importance for companies in keeping abreast of these situations that can escalate quickly.

“Monitoring services also provide intelligence to clients about other potential risks to reputation, such as human trafficking – a problem that increased dramatically during the worst of the Covied-19 pandemic,” explains Heyrick Bond Gunning, CEO of S-RM.

“This monitoring capability, which would be practically impossible for clients to perform on their own, enables companies to react swiftly to potential threats and keep abreast of fast-moving situations,” he adds.

MANAGING THE RISK

Even when companies have examined the potential risks to their reputation, and understood the potential risks along their supply chains, things may sometimes go awry. So, companies must ensure they have a crisis management plan in place that is revisited frequently to ensure it is up to date.

“When a crisis does occur, a reputational risk insurance solution can help companies to respond swiftly and will fund expenses such as additional communication support to ensure companies are on the front foot and can stem the potential damage to their reputation,” says Gregory.

“Claims notifications for our solution are intended to come directly from a client’s leadership team. Both we, as an insurer, and our clients want insurance that can be triggered quickly, helping to contain the size of any potential claim,” she says.

CONSTANT EVOLUTION

As recent geopolitical events have shown us, situations that might threaten a company’s reputation can escalate quickly.

“The use of social media as well as the increased focus on ESG and company ethics will mean companies must remain hyper vigilant to ensure that they are not – even perhaps inadvertently – risking damage to their reputations. Risk management has an important role to play here – in an advisory capacity as well as a financial one,” concludes Gunning.