The Hard Costs of “Soft” Risks: Managing Corporate Responsibility and Sustainability

Reputational Risk Associated With Sustainability Carries Real Economic Consequences

In an article published last month in the US version of The Guardian, they cite that reputational risk damage done to Nike as a result of a corporate responsibility issue caused a loss of half of Nike’s market capitalization, from which it took Nike six years to recover.

The Guardian article is excerpted from the book “Balancing Green: When to Embrace Sustainability in a Business (and When Not To)” published by Professor Yossi Sheffi of MIT.

Another example offered in the article is the reputational damage done to Nestlé after a social media attack by Greenpeace as a result of Nestlé buying palm oil for KitKat bars from suppliers who deforested the rainforest, and inferred that the loss of habitat resulted in the death of orangutans.

“Greenpeace used the power of social media to attack fast, far, and wide. In a matter of weeks, 1.5 million people had watched the video. The attack surprised Nestlé. For one thing, the company thought it had already been addressing the issue. Nestlé had adopted a “no deforestation” policy when directly sourcing palm oil, committing that its palm oil would “not
come from areas cleared of natural forest after November 2005”. Nestlé neither produced palm oil nor owned any farms near orangutan habitats, nor had it ever ordered the clearing of rainforests to increase production of palm oil – but one of its suppliers had.” (bold and italics are mine)

Managing “Soft” Risks

Categories such as corporate responsibility and sustainability are often considered “soft” or subjective risks, but as the article points out – they can carry very real economic consequences.

Nestlé could have implemented a program whereby all raw-material suppliers were required to sign to a certificate of compliance attesting to sustainable sourcing practices such as non-deforestation or conflict-free material sources. Had they done this, they may have been able to identify that supplier who was clear-cutting rainforests and shift the contract to a more responsible source.

Opus’ Hiperos 3PM product is used by many of our customers to extract attestations of compliance from their suppliers associated with procurement policies around conflict minerals, child and/or slave labor, environmental protection, anti-bribery/anti-corruption, anti-money laundering, and many other dimensions of corporate responsibility.

Want to learn more about managing third-party risks? Contact us.

Eliot Madow
Eliot Madow
VP, Professional Services