Understanding Ethical Risk in Business
Ethical risk refers to the potential challenges that may hinder an organization’s commitment to its ethical principles and standards, ultimately affecting consumer trust, corporate reputation, and financial outcomes.
Recently, Finextra engaged with Rachael Saunders, Deputy Director at the Institute of Business Ethics (IBE), regarding the release of their inaugural Ethical Risk Survey and its broader implications. The IBE is dedicated to assisting organizations in navigating ethical risks through research, guidance, and training initiatives. Their mission is to foster ethical conduct and encourage businesses to operate with integrity.
The 2024 Ethical Risk Survey identified inflation, the cost of living crisis, and soaring energy prices as the most pressing risks facing businesses today. Additional significant concerns highlighted in the survey included data protection, privacy issues, theft, misappropriation of funds, financial misreporting, and fraud.
Supporting Consumers During Financial Hardship
An area of ethical concern identified in the survey is the treatment of vulnerable customers. Saunders noted that smaller businesses often struggle to provide adequate resources and infrastructure to support these individuals. However, her observations reveal that smaller organizations can be more agile and provide personalized services, allowing them to adapt and implement effective solutions quickly, despite their limited resources compared to larger firms.
The ongoing cost of living crisis has exacerbated ethical risks for businesses, according to Saunders. Increased financial strain on individuals can lead some down the path of financial crime out of desperation. She explains, “Sustained financial pressure affects trust in decision-makers, politicians, and businesses. The overarching sense of economic injustice leads people to question whether we are genuinely in this together, impacting our societal operations.”
Regarding the social responsibility of businesses, Saunders highlighted instances where supermarkets have emerged as advocates for their customers and employees facing economic hardships due to rising costs.
Interestingly, Saunders expressed surprise that sustainability did not rank higher in the ethical risk assessment, despite being a significant topic in the financial sector. She believes that while sustainability issues are more longstanding, the urgent challenges at the top of the risk list currently take precedence.
Political Risks and the Disruption of Democracy by AI
Another pressing concern is the rise of artificial intelligence (AI) in facilitating fraud, particularly through deepfake technology that spreads misinformation. Saunders emphasized the necessity for organizations to collaborate on sharing knowledge about emerging scams and to educate the public on these threats.
As the year 2024 approaches, which will be marked by numerous international elections, the unchecked use of AI raises significant concerns. Saunders warns of the heightened risk of misinformation about political candidates fueled by AI technologies. She stressed the importance of vigilance from both governments and businesses, urging voters to verify their information and remain cautious about potential AI manipulations.
“There’s a festival of democracy this year, which is commendable, but it’s occurring before AI regulations are fully established. This presents a significant risk of fraud and manipulation, impacting both electoral integrity and businesses. We may witness increased activities from various actors seeking to disrupt democratic processes, which could affect everyone.”
The Importance of Diversity in Ethical Risk Management
Looking ahead, Saunders noted the necessity for businesses to adopt innovative and proactive strategies to protect consumers from emerging risks posed by rapidly advancing technologies. She underscored that diversity is crucial in the pursuit of ethical practices, emphasizing the importance of listening to a broad range of voices and perspectives.
“Organizations often inadvertently engage mainly with those similar to them, which can create blind spots in understanding different behaviors and decision-making processes. By fostering open dialogues across a diverse array of stakeholders, we can be more creative in not only staying ahead of fraudsters but also in developing financial services that genuinely meet customer needs.”