Economic conditions, energy, cost of living rank highly in ethical risk factors for UK businesses

What is ethical risk? Ethical risk consists of the risks that could impede an organisation’s ability to live up to its ethical values and standards which impact consumer trust, reputation, and financial performance.

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Economic conditions, energy, cost of living rank highly in ethical risk factors for UK businesses

Editorial

This content has been selected, created and edited by the Finextra editorial team based upon its relevance and interest to our community.

Finextra spoke of Rachael Saunders, deputy director at the Institute of Business Ethics (IBE) on their publication of their first Ethical Risk Survey and its implications. The IBE supports businesses in mitigating ethical risk through research, advisory, and training programs. The objective of the organisation is to encourage ethical behaviour and engage businesses in acting ethically.

The 2024 Ethical Risk Survey revealed that the highest rated risk factor for businesses today is the economic conditions of inflation, cost of living crisis, and energy prices. Other highly ranked factors included data protection and privacy, theft and improper spending, false accounting and reporting, and fraud.

What can businesses do to support customers under financial pressure?

Another high ethical risk factor in the report’s ranking was the treatment of vulnerable customers, and the fair treatment of customers. Saunders says this is more common with smaller companies who struggle to maintain the infrastructure, funds, and resources needed to support vulnerable customers. However, she notes that smaller organisations can be more agile and personalised in what they do, and being able to operate at a scale allows them to access the latest solutions more quickly, yet they may not have the infrastructure and resources as bigger businesses to address these risks.

The cost of living crisis and current economic situation has impacted the risk factor for businesses heavily, says Saunders, who states that more and more people are under pressure and therefore more likely to get involved with financial crime out of desperation.

“In a situation where people have been feeling sustained financial pressure, it has an impact on trust, in decisionmakers, politicians, and in businesses as well. There is a bigger picture here where the economic crisis has led to a sense of unfairness and injustice because of the economic pressure that many people feel themselves to be under. That has immediate risk associated with it like financial crime, but there is something broader in people questioning are we really in it together? - and what that means for how we are able to operate as a society.”

When speaking about the social responsibility of businesses to speak on behalf of their customers, Saunders points out that there have been a few examples of this with supermarkets speaking out for their customers and employees facing challenges with poverty and prices.

Saunders mentioned that she was initially surprised when sustainability did not rank higher on the list of ethical risk, as it is a hot topic in the financial sector, and will likely stay as such in the future as the climate crisis nears and environmental responsibility grows with customers. She states that the issues on the top of the list are more immediate, while issues of sustainability have been at the forefront for decades.

Upcoming elections and the risk of AI disrupting democracy

An increasingly worrying concern is how AI is being used to commit fraud at a higher rate, especially with deepfakes, facilitating the spread of misinformation. Saunders comments:

“Increasingly, organisations are talking about how they can collaborate both in terms of sharing information about the latest developments that they're addressing and dealing with the latest scams which are being perpetrated on them. Also, collaborating in terms of educating the public on these issues.”

She also mentions the danger of unchecked AI in such a busy year for international elections. Saunders mentioned that dark side of AI will be the potential for false information making the rounds about political candidates will be at an all-time high this year, and both governments and businesses need to remain vigilant and spread awareness for voters to check their sources and be wary of AI manipulation.

“There's a festival of democracy in 2024, which is a great thing, but also this year of democracy is happening before AI regulation has really kicked in. So there is a huge risk, both that fraudsters will be developing tools to help you sway elections, but also that those tools will be used to attack business as well. I think we will see more state or non-state actors who are most affected by disrupting democracy but whose innovations will have an impact on all of us as well.”

The significance of diversity in an ethical risk approach

In the outlook for the future and where how businesses should be approaching ethical risk, Saunders says that those trying to protect customers need to be more imaginative and proactive that the fraudsters that are looking to scam people, and they need to work to combat the developing risks posed by different new forms of technology.

She further notes that diversity is key in ethical practice, and now more than ever people need to be listening to each other and supporting one another.

“In terms of ethics generally inside organisations, we're always at risk of listening to and talking to people who are quite like us, which makes it much harder to think about the behaviours and the way in which people might operate or make decisions who are different to us. So the more we can keep having the most open possible conversations with the widest possible range of stakeholders about both what their concerns are, what their hopes and aspirations are, the more we can be as creative as we can, both in terms of keeping ahead of fraudsters but also in terms of thinking about the best possible financial services products that can really support people.”

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