The World Economic Forum pushed for greater collaboration in order to meet the world’s financial, environmental and social challenges. How corporations choose to respond will be what defines their reputations over the coming year, argues Alberto Lopez Valenzuela, senior partner at Penta.

Concerted collaboration is the only way to ensure our continued coexistence. This was the message of the recently wrapped-up annual World Economic Forum (WEF) in Davos. Under the banner of 'Cooperation in a Fragmented World', the conference highlighted the need for governments, corporations and individuals to work together to build a resilient, sustainable and equitable future in the face of ongoing uncertainty and instability. 

The themes were E, S and G

The conversations at Davos centred on environmental, social and governance (ESG) issues, with the need for coordination magnified by the monumental scale and urgency of the challenges facing the world. Topics discussed include the ability of trade to connect the dots on sustainability solutions; the global economy, cost of living crisis and forecasts of recession; the future of work and the need to re-skill for a green transition; the role of technology in supplying solutions to climate change and economic challenges; and how economic issues link to tackling climate crisis and nature loss.

While it was emphasised at Davos that global collaboration will be needed to overcome these challenges, it is equally apparent that the world’s corporations need to shoulder their share of the responsibility for driving change. This can be achieved by formulating functional, measurable, attainable ESG policies and enacting them. Whether they do so or not will have a fundamental impact on the state of their reputation.

Incoming reputational risks and opportunities

Among the myriad reputational considerations facing corporations, 2023 will see an escalation in ESG-related challenges. Businesses looking to avoid risk and maximise opportunity need to build meaningful ESG policies into their reputation strategies. 

Environmental: corporate sustainability

Corporate responsibility will be the most vaunted reputational asset in 2023. However, grand statements about environmental policies need to be backed up with authentic action, as any suggestion of greenwashing will leech reputational cachet. All shades of greenwashing are equally damaging, with research showing that compared to ‘true green’ behaviour, half-truths erode reputation as effectively as lies.

A report published in the Journal of Business Ethics found that customers are highly likely to spot the gulf between stated environmental goals and implementation, with companies seen to be greenwashing suffering an average 1.34% drop in customer satisfaction – a significant drop in competitive consumer sectors.

The incoming requirements by regulators for corporates to report on climate-related risks, progress towards net-zero, and other environmental standards will make it transparent to stakeholders – including investors, customers and campaigning NGOs – whether organisations are fulfilling their environmental commitments. Failure to do so represents catastrophic reputational risk in the current climate.

Social: diversity, equality and inclusion

The tenets of diversity, equality and inclusion have been central to human resources activity for some time, with the positive impacts on talent attraction and retention of implementing effective DEI policies being well publicised. A 2022 report by Stanford Graduate School of Business shows that 69% of millennials and Gen-Z are more likely to remain longer with an employer that has a diverse workforce.

In 2023 however, the power of DEI as a reputational driver is set to impact all business functions as stakeholders across the board demand more diverse, inclusive businesses. DEI performance will be a focus for shareholders and regulators who want to see diversity targets being set and met, and for clients who want to work with companies whose workforce mirrors themselves.

Governance: cybersecurity

Top of the list of reputational threats for 2023 is cybercrime. The WEF report, State of the Connected World 2023, published at Davos, revealed that only 4% of experts worldwide have confidence in the security of connected devices. Loss of customer data is arguably the most expensive and reputationally damaging discrete event an organisation can suffer. It’s also the most likely, with IBM’s 2022 Cost of a Data Breach report finding that 83% of organisations have suffered a data breach. The average cost of a cyberattack has hit $4.35m.

In 2023, cyberattacks will continue to proliferate, sparking reputational crises including loss of consumer confidence. The 2022 Thales Consumer Digital Trust Index found that 21% of consumers worldwide stopped using a company after it suffered a data breach. Cybersecurity protects not only data, but also reputation. 

Cumulative impact of ESG performance

In 2023 we expect these to be the most pressing reputational issues impacting organisations. Meanwhile, the cumulative impact of broader ESG performance on corporate reputation will continue to build.

In the near future, adapting to and mitigating the impact of ESG issues will be the core components of reputational risk management. To achieve this, businesses must be able to accurately measure their ESG profile and monitor it in real time to identify and diffuse topics that garner negative sentiment before they become material. Proactively leading on ESG issues, meanwhile, will powerfully promote a positive corporate reputation.

When it comes to suppressing reputational risk and maximising opportunity, the principle remains constant: in order to be successful, a company needs to identify the right thing to do, consistently do the right thing and be seen to be doing it by stakeholders.