Environmental pollution, discrimination or human rights violations can result in serious reputational damage. Companies are becoming increasingly aware of this.
Companies are increasingly recognizing the danger of reputational risks and the potential costs of image damage – not least due to the increasing relevance of ESG obligations. At the same time, however, trust in one’s own risk management systems has fallen since 2021 and there is a lack of adequate precautionary and insurance measures in many places. These are the results of WTW’s new Reputational Risk Readiness Survey. For the study, the broker and risk consultant surveyed 375 managers and risk managers from 20 countries.
Risk awareness varies
For 26% of participants, reputational risks are among the top three risks; in the first survey in 2021, this only applied to 18%. More than half (55%) rank it among the top 5 risks (2021: 65%). The remaining five biggest reputational risks include mistakes in dealing with customers (35%) and the threat of assassins (31%). The latter risk has even increased by 11 percentage points (2021: 20%). Only 15% see their reputation at risk from potential cyber attacks.
Calculate the true cost of reputational and ESG risks
“While some companies give reputational risk a higher priority, others consider it to be less relevant. Nevertheless, the growing number of participants who rank image damage among the top three risks shows that reputation is considered one of the key risks from a company perspective,” says Olga Losing-Malota, Head of Broking DACH.
There is a greater focus on the economic consequences of image damage
As demands to meet ESG obligations grow, organizations are also recognizing the financial risk of reputational damage. Finance departments are therefore taking on a larger role in reputation management: three out of five respondents stated that their financial controlling department is now represented in the crisis team. This corresponds to an increase of almost 50% compared to 2021. Furthermore, 95% have a special budget for reputation measures.
Crisis resistance rated low
Despite high awareness of reputational damage and its costs, companies have dwindling confidence in their risk management: only 13% (2021: 23%) said their resilience to reputational risks is very good. “This negative self-assessment is fatal, because the financial damage in particular can be life-threatening,” says Losing-Malota. “Companies still have a lot of work to do. Only those who know their risk profile can take appropriate measures to minimize the threats.”
On the positive side, however, organizations are still trying to prepare for the worst case: more than 90% conduct annual exercises to test their crisis management team and 95% have ready-made press templates for most crisis scenarios.
Management takes little responsibility
Although reputational damage can have fatal consequences, the management of reputational risks is anchored in the KPIs at board level in only 14% (2021: 23%) of companies. Additionally, only 10% engage with stakeholders on reputation issues monthly, compared to 37% in 2021.
WTW from January 16, 2024 / RES JURA editorial office
2024-01-17 18:47:23
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