What does reputational risk refer to?

Reputational risk specifically pertains to the potential loss that a company faces due to negative public perception. This type of risk can manifest from various factors, including inadequate responses to customer complaints, unethical business practices, or any incident that may tarnish the public's view of an organization. The repercussions of reputational risk can be particularly damaging, leading not only to a decline in customer trust and loyalty but also to financial losses and diminished market position.

By focusing on public perception, organizations must carefully manage their reputations, as a single misstep can have lasting effects on stakeholder relationships and brand value. Maintaining a positive reputation can enhance customer retention and attract new clients, making reputational risk a critical consideration for financial risk managers and organizations as a whole.