Business ethics is now the top UK reputation risk

It is a pretty obvious point that the ethics of a business now play a bigger part in its reputation than ever before. Greater public scrutiny, helped by the proliferation of media platforms, has played a large part in that.

But according to our recent report, UK ESG Reputation Risk Report 2021, business ethics has risen – accelerated by the traumatic events of 2020 – to become the biggest single risk to reputation now facing corporate UK.

Methodology

The report is not based on market research. Instead, we used data sets curated by Mettle Capital, an analytics firm that provides ESG (Environment, Social, Governance) information for investor purposes, to understand how the risk profiles of the majority of FTSE350 businesses changed in 2020 versus the year before.

We used our RISKR platform, which uses Mettle Capital data across reputation, trust and standardised ESG factors, to create risk profiles of each company, then provide analysis for the report at sector and overall UK levels. The platform captures all content in the public domain and across media platforms, organises it by company and then cross-indexes it with standardised ESG factors, as well as broader trust and reputation dimensions. Volume and polarised sentiment are then assessed across the curated data sets to identify changes in reputation risk. The analysis concentrated on changes during 2020 versus 2019.

Key findings

1. It found that while business ethics was a sizeable risk in 2019, the Covid-19 crisis accelerated a sharp fall in public sentiment and growth in public domain content around business ethics, the definition of which covers corporate behaviour and threats including regulatory investigations, fraud, bribery, tax management and boycotts.
2. In a year in which many employees worked largely from home and those who couldn’t had understandable concerns over workplace safety, labour practices rose to be the second largest reputation risk
3. This was followed by product quality and safety. Depending on the sector, there were also noticeable shifts in reputation priority around environmental factors, with many continuing to grow in prominence.

Action plan

What should the UK’s largest companies be doing about this then? Well, the first step is to work out how best to get to grips with understanding those risks to reputation in the first place, and how they can continue to be assessed over time.

The challenge in the past has been a lack of rigour around how to do that, meaning board-level executives aren’t always convinced by the information put in front of them about corporate reputation. Too much emphasis has been placed on counting media outputs, interpreting survey data and reports on activity designed to nurture reputation, rather than being able to ‘stock-take’ reputation more meaningfully.

The rise of ESG investing, and the pressure it places on businesses to transform and pursue better ESG ‘scores’, has helped. Data is now becoming available that brings the level of rigour needed to drive investment decisions, and by analysing it in the right way can develop a better understanding of reputation too. It means reputation risk can be understood in depth.

The trick in understanding what action to take lies in a systematic approach to reputation tracking and the data being used to inform strategy because it is clear to, and trusted by, the business. In the area of ethics, that insight has never been more vital in informing change as companies adjust and reshape beyond the pandemic.

Written by Steve Earl, partner at communications firm BOLDT