ESG Risk Integration - Social Risks

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Internal company social risks:
Internal Structure risks
Talent Handling risks
Diversity risks
Health and Safety risks
External relations societal risks:
Client risks
Supplier risks
Local Community/ NGO risks
Social Positioning risks
Capital Providers, States and Regulators risks

Social – Internal Structure risks

The Internal Structure risks are related to the internal social climate, employee engagement, social relations, freedom of organisation, management structures, etc.

The Internal Structure risks can lead to:

  1. Higher costs as a result of conflicts with employees and unions
  2. Lower work moral and lower productivity as a result of low employee engagement
  3. High turnover of employees, with risk of not disposing the required Human Resources when needed, leading to higher costs or lost sales

Social – Talent Handling risks

The Talent Handling risks are related to how the company ensures attraction and retention of talents, internal and external education and other initiatives that ensure the company has the Human Resources they are dependent on for running their business with success.

The Talent Handling risks risks can lead to:

  1. Less interest from candidates with required competence leading to higher salary costs.
  2. Lower quality of service or products as a result of lacking competence, leading to loss of sales.
  3. Weakening competitive positioning as a result of relatively lower competence versus competition

Social – Diversity risks

The Diversity risks are related to the age pyramid, social and gender diversity, ethnic diversity and non discrimination. Diverse thinking is considered a strength. This risk can be found in all hierarchical layers in a company.

The Diversity risks can lead to:

  1. Less optimal workforce requirements versus realistic recruitment pool, leading to higher costs (for instance personnel travelling from far away).
  2. Reduced level of diverse thinking.
  3. High costs of compensating discriminated personnel.

Social – Health & Safety risks

The Health and Safety risks are related to how the company is securing that the employees receive information and training to ensure their work days are safe and healthy. 

The Health and Safety risks can lead to:

  1. High sick leave and accident rate, leading to a) higher costs of temp replacement employees and b) a bad reputation as an employee making recruitment difficult and costly
  2. High costs of compensating employees being sick and wounded at work.

Societal – Client risks

The Client risk are related to the relation the company has to its clients including the relative strength. Interesting elements are client satisfaction, product/service quality, how the company is adjusting to changing client trends, market position, patent protection, etc.

The Clients risks can lead to:

  1. Loss of revenue if clients are unhappy with the deliveries, leading to lower sales. This can be due to lack of quality or non-adaptation of changing client demand for instance.

Societal – Supplier risks

The Supplier risks are related to the relation the company has to its suppliers including the relative strength. A particularity with these risks is that they also include the suppliers relation to their stakeholders like employees, local communities, regulators, etc. It is demanding for companies to have a good view on the supplier risks, certainly the longer away from their own company it is.

The Supplier risks can lead to:

  1. Reputational risk as a result of closing the eyes for the suppliers bad treatment of the employees or local communities, leading to loss of clients and revenue.
  2. High costs stemming from urgent (weak position) need for a supplier change.

Societal – Local Communities/NGO risks

The Local Community/NGO risks are related to how the company is dealing with local communities close to their production sites or service areas. The NOGs are included here as this is closely related. The NGOs are often helping weak local communities defend against the stronger companies. Local Community risks can be linked to Environmental risks, i.e what is en environmental catastrophe is also often a local community catastrophe.

The Local Community/NGO risks can lead to:

  1. Reputational risk as a result of bad treatment or ignorance of local communities, leading to loss of clients and revenue.
  2. Loss of licence to operate, a very serious event that can lead to bankruptcy.

Societal – Social Positioning risks

The Social Positioning risks are two fold as it can be related to how the company is using smoke screens to look good (sponsorships) or it can be related to real action where parts of the company’s revenues or investments really make a difference for a local community for instance.

The Social Positioning risks can lead to:

  1. Reputational risk as a “fraud” company trying to look good, while hiding other elements, leading to client loss and lost revenues.

Societal – Capital Providers, States and Regulators risks

The Capital Providers, States and Regulators risks are related to how the company is dealing with those financing their activity and the instances that control their activity and  represent the law.

The Capital Providers, States and Regulators risks can lead to:

  1. Fines as a result of non compliance to law and regulation.
  2. Losses of licences, leading to loss of revenue and in the worst case bankruptcy.