What is 'reputational risk'?

Reputational risk refers to the potential loss an organization faces when its reputation is negatively impacted, which can affect trust, customer loyalty, and overall performance. When a company's reputation is damaged, it can lead to decreased sales, loss of business opportunities, and an erosion of stakeholder trust. This type of risk often stems from various factors such as poor customer service, unethical behavior, negative publicity, or product failures.

Understanding reputational risk is crucial for organizations as it encapsulates how external perceptions can have significant financial and operational implications, highlighting the interconnectedness of reputation with overall business success. Addressing and managing this risk proactively can help maintain a positive image, sustain customer relationships, and ultimately contribute to long-term viability and profitability.