It took just twenty-five days to damage an international brand

Imagine a scenario whereby the trust in a well-known international brand is eroded within twenty-five days, because they had mismanaged ESG social risk within their organisation. This scenario became a reality during April 2023.

Why does this matter?

This relates to the importance of non-financial data, which is growing in momentum with the circa ESG Assets Under Management already valued in excess of USD 44 trillion. Unacceptable social risks can do more damage to a brand in a short timescale when compared to either the environment or governance elements. Yet social risk is still the poor relation of ESG.

But let us look at the events spread over twenty-five days.

On the 3rd April 2023, the Guardian newspaper revealed claims of sexual misconduct and a ‘toxic culture’ at the CBI (Confederation of Business Industry). The CBI claims it stands for 190,000 British Businesses. Twenty-five days later, the CBI’s website continued to promote the need for “A Transformed Economy. A Better Society. The CBI has an ambitious vision for the economy of the future. A healthier, more diverse, greener, and innovative economy. The most dynamic, competitive, and future-focused ?economy in the world. We champion business so it can lead, not fear, the changes that are all around us.”

These powerful statements are now in retrospect no more than soap-box platitudes as the CBI did not show leadership in the way they managed social risks. Back to the 3rd April, the subheading of the Guardian article cited: “Exclusive: more than a dozen women raise concerns about different men, with one alleging she was raped at a staff party.”

On the 4th April, the CBI postponed all of its public engagements.

On the 5th April, the UK government ‘paused’ engagements with the CBI. This meant the CBI’s core business as a pressure group could no longer function.

On the 11th April, the City of London police started an investigation into claims a woman was raped at a summer party in 2019. On the same day, the CBI sacked the Director General. Again, on the same day the CBI appointed its former Chief Economist Rain Newton-Smith as its new Director General, one month after she had left the?CBI?to join Barclays.

On the 21st April, The BBC reported that the CBI handed over to London City Police more information relating to a new allegation.

Many corporate clients have suspended or cancelled their membership with the CBI. Within this 25-day period these corporates clients include Asda, AstraZeneca, Aviva, BMW, British Land, BT Group, Diageo, EY, GSK, ITV, John Lewis Partnership, Kingfisher, Lloyds Banking Group, Lloyds of London, Manpower Group, Marks & Spencer, Mastercard, NatWest, Phoenix Group, PWC, Rolls Royce, Sainsbury, Santander, Schroders, Scottish Power, Shell, Tesco, Unilever, Virgin Media O2, Vodafone, WPP, Zurich UK, and to name but a few.

?These corporate clients are at the forefront of deploying ESG strategies. Nowadays, such strategies include suppliers because they play a significant role in a company’s overall ESG performance. This includes the supplier’s social performance through their labour practices and human rights record. It is for this reason many corporates had to rapidly distance themselves from the CBI to mitigate the contagion effect of unacceptable social practices.

The way major clients distanced themselves from the CBI led to the press questioning whether the CBI can survive. Under this relentless pressure, on the 27th April, Rain Newton-Smith said she is confident the CBI can win back the trust of the UK Government and its corporate clients within six months, which is the time needed for the organisation to be “completely change”. The need for a ‘phoenix’?strategy at the end of this twenty-five-day period is quite sobering. Unless the CBI can regain trust of the government and corporate clients then its very survivability is in question.

The way corporates rapidly severed their links from a supplier that the media have shown has a toxic culture will increase the pressure on ESG Benchmark Compilers to supply correct non-financial data, especially for unacceptable social risks. The speed of going from a trusted to an untrusted brand will be of concern to the regulators throughout the world that are considering how best to regulate ESG Benchmark Compilers.

My article “The chasm between policy intent and practice has exposed institutional social risk” referred to the Baroness Casey 363-page report that investigated the UK’s largest police force. Casey’s findings were published on the 21st March 2023. This report cited some of the similar social risks as those at the CBI. Both organisations changed their leadership to take high profile actions to eradicate the social risks. Casey warned of the dangers of optimism bias from the new leadership when she said, “problems with culture and attitudes cannot be addressed by developing a new policy, changing the rules or developing a new process.”

It is important to remember, organisations need to re-examine the roles and responsibilities of those involved with managing ESG Key Risk Indicators that do not adequately cover social factors. In particular these roles include: ??????

1.??????Board Directors

2.??????Human Resources

3.??????Chief Financial Officers

4.??????Chief Risk Officers

5.??????Procurement (relevant to suppliers)

6.??????Internal auditors

7.??????External auditors