Financial Risk Manager Part 1

Explanation

The Volkswagen scandal of 2015 was a significant event that highlighted the importance of ethical conduct and commitment to environmental, social, and governance-related best practices for companies. Volkswagen, a renowned automobile manufacturer, was found to have cheated on emissions tests, causing severe damage to its brand reputation. The company's share price fell by over a third, and it faced potential fines and penalties amounting to billions of dollars.

Why B is correct:

• This scandal underscored the need for companies to uphold ethical conduct and demonstrate their commitment to environmental, social, and governance-related best practices
• By doing so, companies can avoid such scandals, maintain their reputation, and ensure their long-term success

Why A is incorrect:

• While investing in social media can help spread positive information about a company, it does not address the root cause of ethical issues or misconduct that may lead to scandals
• It's more of a reactive approach rather than proactive

Why C is incorrect:

• Hiring qualified professionals capable of detecting anomalies is important, but it doesn't necessarily ensure ethical conduct or commitment to environmental, social, and governance-related best practices
• Anomalies can go undetected or be ignored if there isn't a strong culture of ethics and responsibility within the company

Why D is incorrect:

• Nurturing and protecting their brand name by investing in research and development can contribute to a company's reputation, but it doesn't directly address ethical conduct or commitment to ESG practices
• Without these commitments, any investment in R&D could potentially be wasted if unethical behavior leads to reputational damage