Social and political demands on companies will continue to increase in 2022. Good products, decent returns and the occasional CSR campaign are no longer enough to earn the License to Operate. Start preparing now for next year’s most important reputation issues.
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The World Economic Forum, scheduled for Jan. 17-21 in Davos, has been postponed until the summer in light of the rampaging Omicron variant. Still, it’s clear that corporate leaders need to think about stakeholder capitalism ahead of time to protect their organizations’ reputations and maintain their License to Operate.
And they must act.
Because global events such as the Winter Olympics in Beijing (February 4-20), the G7 Summit in Elmau (June 26-28), long-term strategic decisions at the NATO Summit in Madrid (June 29-30), the UN General Assembly in New York (September 13-27), the G20 Summit in Bali (30. and Oct. 31), the UN Climate Change Conference COP27 in Sharm El-Sheikh (Nov. 7-18) and the World Cup in Qatar (Nov. 21-Dec. 18) will relentlessly focus media attention on corporate responsibility to achieve social goals. A further expansion and radicalization of social demands on companies are foreseeable. Those who do not have a strategy here will be left out in the cold in terms of reputation.
1 Supply Chain Management Establishes Itself as a Reputation Factor
At least 15,000 people have died during construction work for the 2022 World Cup in Qatar.
Many associations and companies are still resisting laws that extend corporate responsibility and liability to supply chains. But the Olympics in China, the World Cup in Qatar and Russia’s aggressive behavior in Eastern Europe will focus increased attention on issues of human rights and values-based business in a global context. The responsibility of companies along their supply chains is coming into focus. The disregard for human rights, environmental pollution and also exploitation at major global production sites increase the visibility of social and political aspects along supply chains for reputation management.
In this context, Chinese autocracy and also the military threat from Russia challenge the liberal economic and social models of the West. In order to preserve the sociopolitical basis of corporate value creation, value statements are expected from companies, which must also be reflected in their supply chain management. In the future, companies will have to decide whether they want to do business with aggressive autocracies or in democracies.
2 Democratic Responsibility Gains Importance
In the wake of the pandemic, populism and conspiracy narratives have gained strong momentum and the democratic system is increasingly being questioned.
However, the political challenges are not only in global supply chains, but equally in Germany and the EU. As the Corona protests intensify, conspiracy narratives and populism will continue to occupy much public space in 2022. Liberal democracy remains under pressure. But social cohesion and trust in democratic institutions and processes are central to generating prosperity. Companies must also clearly commit domestically to those political values that enable their business success.
In the wake of the pandemic, populism and conspiracy narratives have received a strong boost and the democratic system is increasingly being called into question. In addition, they also bear responsibility for their employees. There is hardly any other place where people spend as much time as in their workplace. This is where people with different opinions and backgrounds come together. Companies are therefore expected to create a non-discriminatory culture in which employees can experience what democratic coexistence means.
3 Climate Protection Is a Hygiene Factor
In order to implement the results of COP26 in Glasgow, climate protection is high on the list of priorities for both the German G7 presidency and the Indonesian G20 presidency. Both institutions of global governance will be working to implement the decisions made in Glasgow before the global community meets in the fall at COP27 in Sharm El-Sheikh to take stock. Finally, the new German government will also keep climate protection on its agenda.
For companies, climate protection will become a hygiene factor in 2022. Without measures in this field of action, there will be massive reputational risks. But measures alone do not enhance reputation, either. This means that, on the one hand, an ambitious and credible program to reduce the company’s own negative climate effects is imperative in order to remain relevant for customers and business partners. On the other hand, companies can hardly differentiate themselves from competitors here. Climate protection and adaptation must be strategically identified as a contribution to securing and increasing value creation.
Mere announcements are viewed particularly critically in this field of action. They must be substantiated and reported on in detail. Otherwise, information gaps will be filled by external bodies – and the companies will lose their authority to interpret them.
4 Don’t Forget the “S” in ESG
If climate protection and the “E” in ESG are now central and hardly controversial requirements, it is precisely the social issue – the “S” in ESG – that will gain in importance next year. With rising inflation and social dislocation from the Corona pandemic, distributional issues are increasingly pushing their way into the discourse. At the same time, income inequality in Germany is higher than the EU average – and rising.
Companies are increasingly being evaluated in terms of their contribution to the general increase in prosperity. The Corona pandemic has made people aware of the comparatively low wages with which essential activities are currently remunerated. Resentment over the payment of dividends in companies that received government support, as well as over enormous bonus payments, underscore the responsibility of companies to ensure adequate wages and a fair share of value creation for all employees.
Companies are expected to contribute to the prosperity of their communities. Factors such as supplier selection and compensation, as well as tax payments, are becoming more relevant. In addition, however, companies are expected to act as problem solvers – and, for example, to enable innovations with added value for society by investing in research and development. Increasingly, they are expected to contribute to solving general problems through their diverse resources.
Knowing the effects and demands of one’s own corporate activities
In addition to the actual societal effect of a company (Total Societal Impact), external claims are also becoming central to reputation. Through comprehensive reporting activities and communication with stakeholders, companies create a data basis on which to base their strategic decisions. Without this transparency, they are flying blind.
The need for sustainable business practices has now been internalized by politicians and society. In the next phase of the sustainability discourse, transparency will become the decisive criterion. After all, major challenges can only be solved together. Cross-company and cross-sector engagement increases credibility. Helping customers improve their ESG record increases profits. In 2022, companies must show that they understand this – and what contribution they are making to the transformation.
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