Text: Qian Lina, Shi Dan.
id | bmr2004
Cover |Wei Jiuchang, Executive Dean of the School of Public Affairs, University of Science and Technology of China, and Deputy Director of the Sustainable Development Management Committee of the Chinese Management Science Society.
In the ESG era, once an ESG-related crisis occurs in a company, it is often major and tricky, and many factors seem unexpected, but they are inevitable.
After the occurrence of the ESG crisis, stakeholders, including investors and businessmen, often choose to use their feet from the perspective of self-interest protection or risk aversion due to a lack of trust in the company, leading to the expansion of the crisis. Therefore, companies need to pay attention to ESG construction and information disclosure, so as to strengthen stakeholders' understanding of themselves, get support, and avoid suffering greater losses.
A well-known crisis in the ESG space was Volkswagen's 2015 tailgate fraud. Volkswagen installed illegal software on some of its diesel vehicles to control the operating status of diesel engines and make their NOx emissions meet the standard in the exhaust gas detection state, so as to cover up the truth that their emissions exceeded the standard during normal driving. This move has been punished by regulators in many countries around the world, and has also led to the loss of consumers.
Coincidentally, in 2017, United Airlines had an incident of dragging passengers off the plane, resulting in injuries to passengers, but the CEO said in an interview with reporters that this is a normal phenomenon at work. As soon as this statement came out, the company's stock price was ** and its reputation was damaged.
If Volkswagen's experience is a crisis case under E, then United's problem stems from the crisis under S, which is the corporate executives' lack of understanding and respect for the S item in ESG, that is, social responsibility.
The damage caused to companies by ESG-related crisis events must be learned, they are not a sudden technical accident or product defect, and once they occur, the crisis at this level will be more difficult to repair. How can companies identify ESG-related crises, and how can they respond to risks and crisis management in the ESG era?On November 28, 2023 At the 9th Xiangguang Annual Conference held on November 28, 2023, the reporter of "Business School" interviewed Wei Jiuchang, Executive Dean of the School of Public Affairs of the University of Science and Technology of China and Deputy Director of the Sustainable Development Management Professional Committee of the Chinese Management Science Society.
Repair and management of ESG crises
In Wei Jiuchang's view, the root causes of ESG crises are different, some are at the governance level, some are at the decision-making level, and some are at the corporate culture level. In the aftermath of a crisis, don't try to cover up the truth, because of the widespread nature of the spread of information, covering up information will only prove to be a futile exercise.
The right thing for enterprises to do is to have a sincere attitude, and only by making stakeholders feel a sincere attitude can they maintain the original trust relationship and gain their recognition, understanding and support, otherwise they may worry that the situation will become more serious in the future and make risk-averse behaviors, leading to further expansion of crisis losses.
In the aftermath of a crisis, companies need to communicate effectively to restore trust with consumers and rebuild trust among stakeholders. After a crisis occurs, enterprises must realize that this is a matter that requires a lot of energy and cost to deal with, and cannot be left to chance.
How to establish an ESG crisis management system?Wei Jiuchang believes that this system is hierarchical and systematic. Enterprises need to understand that ESG is an investment, not a cost, and it is related to stakeholders, social responsibility and environmental responsibility.
First of all, business leaders should have a high degree of acceptance of the concept of ESG. ESG concept is related to the cognition of corporate managers, who are the most important promoters of ESG, so it is necessary to understand what weaknesses exist in various areas of ESG, and more importantly, to understand the focus of social concern.
Secondly, enterprises should have corresponding responsible departments to shoulder the responsibility of ESG crisis management, and establish corresponding assessment mechanisms and information communication channels. ESG crisis management guidelines and systems should not only stop at the report, but also invest sufficient resources in the implementation of ESG.
Thirdly, it is necessary to establish a sound ESG crisis management process. With the platform, responsible departments, and resources, companies need to know how to carry out ESG crisis management, and have corresponding steps, from crisis prevention to measures when the crisis occurs, and even evaluation and improvement measures after the crisis is handled, which is a complete process.
Finally, companies need to create an atmosphere where every employee is aware of the importance of ESG and ESG crisis prevention, knows how to do it, and what tools, documents and processes are in place. Once the environment and atmosphere are in place, companies need to identify, analyze, and respond to ESG crises. Since ESG involves various stakeholders inside and outside the company, information communication is a continuous and dynamic process, which requires a review of each link, and a monitoring and review mechanism for each functional module, so that the system can quickly play a role once there are signs of an ESG crisis.
Identify crisis elements
With more than 200 indicators involved in the ESG evaluation system, there is a lot to explore about how companies can identify factors related to the ESG crisis.
ESG is related to the external environment faced by the organization, so the key is to start with the external change factors, understand the way through which these change factors will be transmitted to the company's business process or products, make accurate predictions, grasp the time, manifestation and future development trend of the crisis, so as to take reasonable countermeasures.
Compared with European and American companies, Chinese companies have more crises in environmental accidents and technical accidents, but crises caused by human factors such as food safety crises and corporate financial fraud also occur from time to time.
Financial fraud is common in domestic and foreign enterprises, and in the process of long-term development, once an enterprise is in a relatively closed governance structure and lacks information transparency, it is easy to lead to biased decision-making, which will eventually lead to financial fraud crisis events.
With the acceleration of global changes, managers of foreign companies are prone to fall into ESG crises when they express inappropriate views on international political issues, which is a new ESG crisis phenomenon that has emerged abroad in the past two years.
In general, there are significant differences between Chinese companies and those in developed countries in terms of the triggers for the crisis and the reaction to the crisis. When a crisis occurs abroad, most CEOs apologize, but few Chinese CEOs apologize, which is a difference in coping strategies and is also related to the selection and recruitment mechanism of corporate leaders.
For example, in April 2017, United Airlines' violent towing of Asian passengers triggered a strong reaction in the United States, and on April 11, United's stock price fell nearly 6%, the largest decline in eight months since early August 2016, and the CEO of United Airlines had to apologize on Twitter. But few CEOs have come out to apologize after accidents in Chinese companies. Therefore, whether the CEO comes out to apologize is not a common practice at home and abroad, and the key to resolving the corporate crisis is whether the stakeholders perceive whether the company has a sincere attitude. In the aftermath of a crisis, don't assume that market memory is short-lived, and in most cases business leaders still need to come out and communicate well with investors and stakeholders, so that the crisis repair effect may be better.
Although there is no official ESG evaluation index system in China, the Shanghai Stock Exchange, Shenzhen Stock Exchange, China Securities Regulatory Commission and relevant state departments have issued relevant guidelines.
Under the guidance of the 3060 goal, the state has issued a series of regulations for carbon neutrality and carbon emission reduction. Carbon emission reduction involves the accounting and publication of some data, which may affect the operating conditions of enterprises in the short term, resulting in the dilemma of enterprises when publishing these data. However, in the long run, the accounting and publication of carbon emission reduction data can force enterprises to innovate and change their business models, thereby creating new environmentally friendly and socially friendly profit models. At the end of the day, companies should look at ESG as an investment, not a cost.