Environmental and Social Risks from the Perspective of Reputational Risk

Nina Roth and Olivier Jaeggi

INTRODUCTION

There are at least three reasons to have a chapter on environmental and social (E&S) risks in this book. First, such a chapter can contribute to a better understanding of E&S risks. Second – and this rationale likely resonates more with the readers of this book – E&S risks offer interesting insights into reputational risk. This is because, in the arena of E&S risks, reputational risk can occur independently of other risk types. Therefore, discussing E&S risks also contributes to the discussion about whether or not reputational risk events occur only as a consequence of other risk types (for example, credit risk, market risk, and operational risk). Third, in most banks E&S risks are still a neglected source of reputational risk, despite their importance. This is why the main purpose of this chapter is to make the case that E&S issues harbour considerable potential for damage in the here and now, and that banks take a significant risk if they underestimate them.

The chapter is organised into five sections: the first section contains a framework that describes E&S risks, particularly those that present reputational risks for banks. Here, we discuss the fact that E&S