Managing Reputational Risk through Environmental Management and Reporting: An Options Theory Approach

Abstract

Abstract:Reputation is a complex and multidimensional concept that may be organized in downside and upside reputational risk. In this article, we present a formal modelling for the management capabilities of environmental management and reporting over reputational risk, considering that reputational risk is becoming increasingly important for organizations and it directly depends on the information available about companies' environmental performances. As long as the effectiveness of communication and disclosure plays a key role in the process, the usefulness of environmental management and reporting as a hedging instrument for reputational risk is addressed through different levels of information transparency. When considering a scenario of voluntary reporting, we show that environmentally concerned companies can reduce the cost of environmental management as a reputational risk strategy, as well as reducing the potential loss of reputational value from reputational threats and increasing the potential profit from reputational opportunities. In the context of mandatory reporting, we highlight the role of assurance companies as bearers of the risk of bad reputations for non-concerned companies. As a result, this novel approach applies theoretical oriented research from options theory to reputational risk management literature, so that it benefits from the option's well known theory, robustness, and conclusions.

Persistent voting decisions in shareholder meetings

“…By showing that reputational effects captured by voting decisions persist over time, this study supports previous studies that link voting performance and corporate reputation (Ang & Wight, ; Ravasi, ; Roberts & Dowling, ; Schultz et al., ). This idea is consistent with previous findings on the iterative nature of reputational issues (Pineiro‐Chousa, Vizcaíno‐González, & López‐Cabarcos, ) and the role of corporate social responsibility and reporting in building persistent reputational effects (Pineiro‐Chousa, Vizcaíno‐González, López‐Cabarcos, & Romero‐Castro, ). This study's findings also support previous studies that have addressed proxy voting and the role of proxy advisors, providing insight for practitioners to understand the complexity of voting in shareholder meetings.…”

“…This idea is consistent with previous findings on the iterative nature of reputational issues (Pineiro-Chousa, Vizcaíno-González, & López-Cabarcos, 2016) and the role of corporate social responsibility and reporting in building persistent reputational effects (Pineiro-Chousa, Vizcaíno-González, López-Cabarcos, & Romero-Castro, 2017). This study's findings also support previous studies that have addressed proxy voting and the role of proxy advisors, providing insight for practitioners to understand the complexity of voting in shareholder meetings.…”

More Sustainability in Industry through Industrial Internet of Things?

“…This is only the case when the disclosed information is perceived as credible by the relevant stakeholders. Greenwashing or in the worst case false statements can on the other hand create a reputational risk for companies as recently demonstrated by the Volkswagen scandal [12].…”

Sustainable Entrepreneurship Orientation: A Reflection on Status-Quo Research on Factors Facilitating Responsible Managerial Practices

“…According to Tian, Wang, and Yang, companies are "obliged" to a certain extent to facilitate and achieve a fundamental level of economic and legal CSR, and should therefore not neglect it´s importance, because the sharing economy model enables a two-way avenue to higher levels of CSR practice and ethical and philanthropic responsibilities [100]. Morever, an increase in customer perception can be linked to an improvement in terms of reputation; considering reputation as a strategic asset, Pineiro-Chousa et al have introduced the concept of using the implementation of sustainable practices as a suitable risk-hedging strategy [125,126].…”