More than three quarters of global executives lack confidence in their companies’ approach to ESG topics.
This is according to a new report just released by WTW. It found that while 83% of senior executives take reputational risk seriously, 77% are not fully confident in their company’s ‘risk readiness’. A slightly smaller percentage said that they did not hold their board members accountable for reputational and ESG risks, something that WTW said created a negative perception around a lack of commitment.
Garret Gaughan, head of global markets direct and facultative at the company, 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.”
He added: “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 report also indicated that seven out of ten senior executives focused more on reputational damage caused by an internal event such as employee abuse than on an external one such as cybercrime. It also found that 74% were cognisant of the damage caused by a reputational event.
WTW said in a statement: “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.”
ESG and reputational risk have been topical for some time. In January, Aspen said it would look to incorporate ESG into its decision-making processes for its Credit & Political Risk portfolio. Back then, the re/insurer said it aimed to have two-thirds of its premium in that portfolio originating from transactions with a favourable ESG classification.
Even with all the noise around ESG and investing, US insurance companies’ interest in evaluating their assets through an ESG lens have lagged behind their use of ESG when it comes underwriting. That was the conclusion from insurance asset manager Conning recently. It found that that the engagement with ESG investing factors may be accelerating, with 41% of respondents indicate that they began incorporating ESG factors this past year, 79% the past two years, and just 12% more than two years ago. A total of 67% reported incorporating ESG factors into their investment considerations in 2021.
WTW’s 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.