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ACCA Applied Knowledge · Business and Technology · Environmental and sustainability factors

Zenith Foods sources palm oil from a supplier later shown to have cleared rainforest. Media coverage leads several retailers to delist Zenith's products. Which statement best explains the type of risk Zenith has suffered and its primary cause?

Zenith has suffered reputational and supply chain risk. Stakeholders hold the company accountable for its supplier's environmental damage, so retailers delisted its products. The scenario says nothing about currency movements, late payment or machinery failure, so those risks are not the cause.

  1. AReputational and supply chain risk, because the business is held accountable for environmental harm by its suppliersCorrect
  2. BExchange rate risk, because palm oil is traded internationally
  3. CLiquidity risk, because retailers pay late
  4. DPurely operational risk from machinery failure

Explanation

The loss of retailer business stems from damaged reputation caused by environmental practices in the supply chain. Stakeholders increasingly hold firms responsible for suppliers' conduct. Nothing in the scenario concerns currencies, payment timing or machinery.

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