Insights

Reputational Risk: Are your assets a liability?

Consider a healthcare organization with tobacco holdings; or a religious organization invested in the arms race; or perhaps a land conservancy with interests in the tar sands. These are reputational disasters waiting to happen.

Reputation damage is the No. 1 risk concern for private sector executives around the world[1]—nonprofit organizations are no less vulnerable to a sudden escalation of scrutiny driven by the volatile combination of vocal critics and social media sharing.

It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently. —Warren Buffett

Hard-to-assess intangible assets like brand recognition, intellectual capital, and goodwill are especially vulnerable. It is tough to compete for funds, talent, and earned media with a shadow hanging over your reputation and integrity.

Mitigate risk by closing the reputational gap

With growing discussions and evolving expectations around climate change, putting policy into practice is critical. The consequence of failing to adopt—and follow—a policy on fossil fuel investment, “should not be underestimated,” [2] notes investment firm Towers Watson. Aligning organizational values with policies and actions closes this gap, mitigates risk, and solidifies reputation thanks to a halo effect.

There is a new fiduciary duty for asset stewards: to manage dollars well, and to do due diligence in aligning those dollars with the new expectation that investments must add value to an organization’s sector. This means heightened scrutiny of possible investments—diving deep and analyzing each company based on their ESG policies and practices.[3]

Finding the right investment manager is an important step in this process. Socially responsible investing demands portfolio flexibility and customization. Are your assets working for your mission, or putting your organization at risk?

[1] 2014 Global Survey on Reputation Risk, Deloitte, October 2014.

[2] Fossil Fuels: Exploring the Stranded Assets Debate, Towers Watson, 2014, 12.

[3] The Value In Values-Based Investing, Merrill Lynch, Forbes.com, November 22, 2013.

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