How to navigate crisis management when responding to ESG-related matters

Crisis management is a well-established discipline but is often not deployed effectively when considering sustainability-related matters. Organisations should ensure they control the pace and content of the conversation relating to these topics through pro-active risk management and effective crisis response.

Good crisis management, supported by effective training and testing, can have influence on whether an organisation’s reputation remains intact.

Rapidly changing context

Reputation is about an organisation’s actions being consistent with the expectations of its stakeholders. In sustainability, expectations and perceptions can move rapidly and organisations find themselves in the crosshairs of pressure groups, movements, and other non-governmental organisations (NGO), due to wider geopolitical changes, often outside their control. 

This is particularly the case for insurance companies who are under-pressure to establish their stance on climate change. Insure Our Future (IOF) have been good at capturing the headlines with their campaigning, more so than localised pressure groups. IOF have clearly understood the influence the financial services sector has over the flow of capital to carbon-intensive sectors and how targeting insurers can directly impact the ability of these sectors to operate.

What role should crisis management play?

Interestingly, we find that despite many organisations having formal business continuity and crisis management plans in place, these are not always deployed when they come under scrutiny from external groups. 

In the insurance sector, pressure groups often approach insurers on an individual basis to challenge whether they are providing insurance to headline grabbing controversial fossil fuel developments, as well as more regionally specific developments that might impact local communities, in particular, disadvantaged Indigenous groups. A typical response is to reassure that this is not precedent, to try and prevent other groups from intervening, and occasionally, silence proves to be the best available option. However, to respond to such matters in a thorough and timely manner, established processes must be put in place.

Being proactive and anticipating issues is the core purpose of effective risk management. It is not always possible to control external events, and this is where crisis management comes in and approaches typically follow a certain pattern. For instance, a group may approach legal, communications or underwriting teams. All corporate organisations need to ensure that stakeholders involved know not to respond immediately and who the query should be referred to. Queries are typically referred to groups involving, the General Counsel, Chief Underwriting and Risk Officers. They will evaluate the situation to understand if the organisation has a current or potential business relationship with the entity under scrutiny and will produce a set of options and recommendations for the Crisis Management Committee to consider and approve. The final decision may still be not to respond, but this decision will be made in an informed manner, with coordinated input from a range of key functions and external advisers where appropriate.

How well do people perform in practice?

Under such circumstances, it makes sense to have a well-defined process and ensure everyone is well-versed in what they are expected to do. Surprisingly, it is quite rare for organisations to perform desk-top exercises during these scenarios. In practice, key lessons are learnt, including, training opportunities for deputies, should the key decision makers be unavailable, and on-boarding opportunities for senior managers that are new into their roles. Given the reputational consequences of making the wrong call or not gathering sufficient information to make an informed judgement, this seems short-sighted. Crises do not occur so often that everyone is well equipped on what their role is and how to perform it, so practice helps. The findings of the seminal paper by Knight & Pretty still stand. The actions taken by an organisation within the first 48 hours of a crisis are critical and will determine whether your organisation can recover.

What are the implications for risk functions

In my article, CRO – Is it time to transition towards ‘Chief Responsibility Officer’?, I argued that Chief Risk Officers and their teams were becoming more active in helping management teams protect their organisation’s reputations. The question is, should organisations wait to respond to approaches?

In supporting organisations with their climate risk management programmes, we have come to recognise that proactivity is key, and these plans need to integrate a strong crisis management element. Our perspective is that it’s not often the case today. As the world approaches the first set of Net Zero milestone targets in 2030, it is easy to anticipate that increasing pressure will be applied to organisations to clarify their stances and sharpen their commitments.

Insurance organisations are increasingly working on their transition plans and beginning to demonstrate that they are engaging with their insurance clients on how their business models are adapting. This is central to being able to demonstrate a clear Net Zero pathway, which is evident in the recently published SBTi paper. The steps required to achieve de-carbonisation are significant and urgent. Prevention is always better than cure, hence putting in place corporate policies that pre-emptively address stakeholder concerns, whilst demonstrating an effective transition plan. For example, many insurance organisations have published policy positions on thermal coal and increasingly these are being expanded to address wider fossil fuel dependent industries. Inevitably, policies and procedures cannot deal with every situation, so it is important to create a risk-aware culture. Where underwriting staff think carefully about the implications of the organisations with whom they do business. Some insurers are putting in place watchlists whereby projects and developments that are not currently subject to external pressure but are not consistent with their transition plans, are subject to referral to senior management, such as, a Chief Underwriting Officer. It is important that risks are written with careful consideration of the full ramifications.

Risk functions have a significant role to play in supporting and challenging their colleagues to ensure that the appropriate questions are being asked at all levels and that the organisation can act in a manner consistent with its values, stated policies and risk appetite.

How can we help? 

Sustainability-related issues can impact an organisation’s reputation if not professionally managed. Our perspective is that a joined up approach is required, pulling together the strands of transition plans, with risk and crisis management to ensure that organisations are able to proactively control their narrative and work with their stakeholders to demonstrate progress towards Net Zero. Through our practical and experienced team, Crowe is helping risk and sustainability teams with their crisis management planning and testing.

Please contact Alex Hindson or your usual Crowe contact for more information.