Global execs lack confidence in their firms’ ESG risk readiness

A new study has uncovered a considerable lack of confidence on the part of global executives in their own organisations’ approach to reputational and ESG ‘risk readiness’, with many reporting that only a moderate amount of assessment has gone into these areas, according to a report published by WTW.

The insurance broker and risk advisor's report covers 250 major companies from the retail, manufacturing, leisure and hospitality, transportation and third sectors in 20 countries. More than 83% of the 500 senior executives canvassed say they take reputational risk seriously and place it in the top five risks across their company, but 77% are not fully confident in their company’s reputational and ESG risk readiness.

Positive strides are being made but more can be done, the report found, as only a moderate amount of assessment has gone into analysing the risk or putting in place a formal process to ensure governance, accountability, monitoring and reporting.

Garret Gaughan, head of global markets direct and facultative, WTW said “In an increasingly digital, service-oriented economy, reputational risk is firmly on the corporate agenda. However, our findings also suggest that organisations may have failed to accurately assess the length and depth of a potential crisis. Few appear to have the level of modelling that would enable them to quantify the scale of financial losses. This means they may not be prepared for the full impact on their business if a damaging reputational event occurred which is why it is critical to look at reputational crisis insurance to mitigate potential reputational risk.”

Further findings: ESG and rep risk (Source: WTW)

• Despite formal teams being in place, around 75% of companies do not hold their board members accountable for reputational and ESG risks – creating a negative perception amongst staff of a lack of commitment.

• 70% of senior executives focus more on the risk of reputational damage caused by an internal event (eg. employee abuse or ESG) and less so on an external event (eg. cyber crime) – what looks like an oversight on an important external risk could be the result of a board that is not perceived to take the matter seriously.

• 74% of senior executives are aware of the potential cost of damages caused by a reputational event, and as a result 86% have reserved budget to cover the costs and 84% have a contingency budget for marketing and communications. However, these costs might not be completely accurate given 87% do not forecast frequency and severity of potential damages exposing a significant risk of misallocated budget.

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