Social risks resemble unpredictable plot twists in a reality TV show—hard to keep up with and almost impossible to foresee. Social risk events can jeopardise a company’s social reputation and relationships. It is the corporate equivalent of accidentally sending an embarrassing email to a company’s entire client list; social risks are anything that tarnish the company’s social standing in the media, community, and with consumers.
In today’s digital age, social media amplifies any incident, spreading the impact far and wide. In 2017, United Airlines encountered a public relations nightmare when a video emerged of a man being forcibly removed from an overbooked flight, leading to intense media scrutiny and a public backlash.
Similarly, American farm equipment manufacturer John Deere faced severe criticism from an “anti-wokeness” campaigner, prompting the company to withdraw from “cultural and social events” and scale back its Diversity and Inclusion (D&I) policies. These incidents highlight how quickly social media and risks can escalate issues, significantly impacting a company’s public relations and policy decisions.
Social risk is relevant across various industries, it often carries specific implications in manufacturing. Manufacturers have unique opportunities to manage social risks compared to companies in other sectors.
By addressing labour practices, supply chain ethics, and community impacts, manufacturers can not only mitigate social and reputational risks but also build stronger relationships with consumers—who are increasingly keen to know if their favourite brands are more than just a pretty logo. So, what strategies can manufacturers employ to effectively address social risks and turn them into strengths?
1. Pay up: fair wages mitigate social risks
Manufacturing often involves large workforces and complex labour conditions, making labour practices a significant area of risk. These risks encompass worker safety, fair wages, and working conditions, which are more pronounced in manufacturing than in some service-oriented industries.
According to the International Labour Organisation (ILO), a fair living wage is one that “covers the costs of all essentials, such as food, health, education, housing, and other necessary goods and services, in accordance with national circumstances.” However, the World Benchmarking Alliance, which monitors progress towards the United Nations’ Sustainable Development Goals, reports that only 4 per cent of the top 1,000 global companies either pay their workers a living wage or have set targets to achieve this.
When companies get this right, the benefits can be substantial. A study by the Living Wage Foundation found that 87 per cent of companies paying a living wage report an improved reputation; 75 per cent note increased motivation and retention rates among employees; and 58 per cent see better relations between managers and staff.
2. Integrate supplier assessments into manufacturing supply chains
Manufacturing relies heavily on global supply chains, often involving multiple layers of suppliers. Monitoring social risks, such as ensuring ethical labour practices and environmental standards at every supply chain level, becomes essential. Incorporating supplier assessments into your manufacturing strategy is crucial for maintaining high ethical standards and meeting the growing demand for transparency and responsibility.
This approach not only safeguards your brand’s reputation but also strengthens trust with consumers and stakeholders who value ethical and sustainable practices.
3. Keep an eye on eco-warriors, Gen Z
Manufacturing processes can have substantial environmental impacts, such as pollution and resource depletion. Companies that show they care about the environment often see a boost in brand reputation and customer loyalty. Research shows that consumers are becoming more aware of ethical issues, which affects their purchasing choices and strengthens their support for brands committed to social responsibility and Environmental Social Governance (ESG) principles. This trend is prevalent among younger consumers.
The eco-minded Gen Z is a generation of “digital natives” who are choosing sustainable options over brand names. They’re not just setting trends—they’re showing everyone how to shop more sustainably and giving older generations a nudge to follow suit!
4. Create social impact benefitting the community
Manufacturers maintain a physical presence in local communities where their facilities operate, enabling direct engagement with community stakeholders. This proximity allows them to address concerns and collaborate on social initiatives that benefit the area. By strengthening community relations, manufacturers can mitigate risks related to opposition, land use conflicts, and reputation damage.
Japanese electronics company Panasonic exemplifies meaningful community impact by challenging the cultural narrative that girls are not good at maths or science. The Panasonic Foundation recently launched coding institutes in U.S. school districts where computer science education is scarce. This initiative underscores how manufacturers can play a crucial role in their communities. By supporting local causes and engaging in impactful initiatives, companies enhance their reputation and foster stronger, more connected communities.
5. Design a tailored social risk management strategy
Creating a robust social risk management strategy isn’t just important—it’s crucial. Without it, businesses risk triggering socio-environmental issues that could harm their reputation and community relations. Start by thoroughly understanding the socioeconomic and socio-environmental impacts of your activities. Assess how these factors affect people and the environment, evaluate the risks, and implement effective management measures, including prevention, mitigation, or compensation.
Equally important is identifying vulnerable groups and evaluating their capacity to cope with and recover from any impacts. Your business strategy should include specific measures to support these groups, ensuring their needs are addressed. By focusing on these aspects, your company will effectively mitigate risks and build stronger, more respectful relationships with the communities and stakeholders you engage with.
Embrace new solutions for strategic social risk management and sustainable growth
Effectively managing social risks safeguards your company’s reputation in today’s interconnected world. As manufacturers navigate complexities, they should seize opportunities within challenges to enhance social risk mitigation. Proactively adopting robust frameworks and compliance strategies ensures your business remains resilient, gains a strategic advantage, and fosters long-term growth and sustainability.
Managing social risk is complex, but manufacturers can effectively manage social risks by leveraging solutions, such as the Índice de preparación de la industria para la sostenibilidad del consumidor (COSIRI). Endorsed by the Foro Económico Mundial (FEM), COSIRI serves as a comprehensive Environmental, Social, and Governance (ESG) framework, enhancing sustainability and reducing GHG emissions across all manufacturing industries.
This robust tool empowers manufacturers to manage key risk factors more effectively, providing a strategic advantage and fostering long-term growth.
