RepRisk and CSRHub: Study Finds Link Between Perceived CSR Performance and Reputational Risk

RepRisk and CSRHub have released findings from their joint research report on the link between perceived CSR performance and ESG-related reputational risk exposure. They combined CSRHub data on perceived CSR performance and RepRisk data on the level of ESG-related reputational risk exposure for more than 4,000 companies from around the world. The results are very interesting and worth a read. The section, “Focusing On Specific CSR Factors Uncovered a Strong Correlation,” provides, in my opinion, some of the most interesting information. Digging down into the details to explain why overall CSRHub ratings were not correlating with the RRI (RepRisk Index) leads to this (directly quoted) analysis:

We also understand why some elements may not relate to risk:

Risk-reducing factors. Good Human Rights & Supply Chain programs should help a company identify supply chain hot spots and either replace a poor performing supplier or help it improve its internal processes. A tradition that values Leadership Ethics should keep a company from engaging in risk-creating practices. And Resource Management programs that recycle and reuse resources will tend to minimize a company’s ecological footprint and reduce opportunities for environmental problems.

Risk-increasing factors. Strong Community Development and Philanthropy programs may be connected with increased risk, because companies that have them may be trying to avoid or offset risky activities. Some giving programs may also fail to integrate with a company’s overall CSR strategy or the needs of key stakeholders. Both giving programs and extensive Environment Policy and Reporting programs may be seen as “greenwashing”–only needed when a company has community- or environment-related risk. The positive correlation with Compensation and Benefits may support the theory that higher risk companies may need more aggressive employee incentive programs. These programs may lead to employees pushing to meet unrealistic financial or operating objectives.

Un-related factors. Six factors did not seem correlated with risk. It seems that company Boards are too removed from operating decisions to have much connection with risk exposure. Diversity and Labor Rights and Energy and Climate Change issues should introduce risk, but perhaps in too abstract a manner to show up in our study. The CSRHub Product category measures whether or not a company’s products have impact on society—a different issue perhaps from whether they generate corporate risk. We expected Training, Health, and Safety issues to be important for risk. However, many companies may have shifted their risk focus in this area into their supply chain. Finally, the lack of connection with Transparency and Reporting may be due to the timing lag between corporate sustainability reporting and risk-related events.

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