Report highlights reputational damage from worst governance failures

21 January 2019 Consultancy.asia

Risk management consultancy RepRisk has released its annual list of the year’s worst environmental, social, and governance failures at companies around the world, with several incidents in Asia atop of the list.

Now in its ninth edition, the Most Controversial Companies (MCC) Report seeks to highlight the reputational damage and bottom-line impact from the ten greatest environmental, social and governance (ESG) failures worldwide in the private sector over the past year, and the effect on business networks caused by these incidents. This year, the top four spots concerned failures at companies based in Asia. 

“The MCC 2018 Report shows how major corporations from different sectors, including airlines, utilities, and banks had to mitigate reputational and financial impacts resulting from inadequate management of ESG risks,” said RepRisk CEO Philipp Aeby, a former consultant at BCG. “The wide spectrum of ESG issues faced by the companies, and the ripple effects of these issues on the sector as a whole, highlights the global dynamics of ESG incidents.”

The wide spectrum of ESG issues Aeby cites includes money laundering in the banking industry, scams perpetrated on the public, several product recalls (featuring salmonella, faulty vaccines, and listeria), engineering mishaps due to gross negligence, general widespread corruption, and, unfortunately in the instance of Asia, the considerable loss of life – with this year’s list led by the crash of Lion Air Flight JT 610 in Indonesia.

Most Controversial Companies

On October 29, the Lion Air flight out of Jakarta crashed shortly after take-off, killing all 189 people on board, in what was the second deadliest crash in Indonesian aviation history and the first major international incident involving Boeing’s relatively new 737 MAX model. Since the crash, Boeing has been sued by relatives of one of the victims, while Boeing has in turn blamed Lion Air for poor maintenance standards.

Three months earlier in Laos, an auxiliary dam of the Xe-Pian Xe-Namnoy Power Hydropower Project on the Mekong River system of the country’s Champasak province collapsed and swept up to 800 people to their deaths (official figures stand at 43) while displacing many thousands more. Insufficient action on a known fault is alleged as the triggering cause, while the government has pointed to sub-par construction and inadequate risk assessment.

With all respect due to the victims and those affected by the tragedy, the incident demonstrates the ripple effect for globally-networked businesses and issues arising from the insufficient management of ESG risks. Multiple parties have been blamed for the incident in addition to operator Xe-Pian Xe-Namnoy Power, including dam partners Korea Western Power, Laos State Holding Enterprise and SK Holdings subsidiary SK Engineering & Construction.

Also in Asia; the nearly $45 million grand fraud perpetuated by several jewelers and a pair of employees at Punjab National Bank – India’s largest ever bank fraud – bringing regulatory heat to the industry as a whole and an unwelcome spotlight on the jewelry trade, and; the case of Changsheng Bio-technology in China, which had been producing ineffective vaccines (with some bribery and forgery thrown in), for, among other potential ailments, rabies.  

With headquarters in Switzerland and an Asia-Pacific hub in the Philippines, RepRisk has since 2006 combined big data analytics, artificial intelligence and human analysis to assess and continually update the ESG risks associated with nearly 120,000 companies and 30,000 projects worldwide on its RepRisk database, providing cross-sector due diligence services to leading financial institutions, insurers, investors and corporates across the globe.

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