ESG risks still not understood by major business leaders

There are growing fears amongst business leaders that their firms are not fully aware or prepared for the risks posed by Environmental Social Governance (ESG) requirements.

Broker Willis Towers Watson (WTW) has released research which found what it described as a considerable lack of confidence on the part of global executives in their own organisations’ approach to reputational and ESG ‘risk readiness’.

The survey was undertaken with 500 global executives from 250 top companies across 20 countries in retail, manufacturing, leisure and hospitality, transportation, non- government organizations (NGOs) and charities.

It found many believe that only a moderate amount of assessment has gone into the areas which are key to the delivery of ESG.

Garret Gaughan, head of Global Markets Direct & Facultative, WTW said “In an increasingly digital, service-oriented economy, reputational risk is firmly on the corporate agenda. However, our findings also suggest that organizations 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.”

The broker said the research had found said 83% of senior executives say they take reputational risk seriously and place it in the top five risks across their company. However, 77% of senior executives are not fully confident in their company’s Reputational and ESG ‘risk readiness’. Positive strides are being made but more can be done – 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.

“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,” added the report. “70% of senior executives focus more on the risk of reputational damage caused by an internal event (e.g. employee abuse or ESG) and less so on an external event (e.g. cybercrime). 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.”

The research found74% 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, WTW warned 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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