14. Enterprise Risk Management (ERM)
Within the framework of the Enterprise Risk Management Policy, risk assessments are prepared by Business Units, Global Functions, and Corporate Functions to assess threats that will impact the achievement of the objectives set for Clariant overall. These objectives are a result of the overall strategy of the Group as set by the Board of Directors and implemented by the Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents.. The Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents. is responsible for monitoring the risk assessments for relevance and consistency. The Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents. has formed an »Ethics and Risk Management« subcommittee, which maintains an up-to-date understanding of areas where Clariant is, or may be, exposed to risk issues and seeks to ensure that management is effectively addressing those issues.
The short- and long-term objectives are set in the fourth quarter of the year. These objectives and threats are subject to scrutiny by the Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents. during meetings with each business unit. Also reviewed and discussed are proposed measures to reduce or contain threats. In that context, responsibilities are assigned. All stakeholders are required to report significant changes to existing identified risks and new threats as they arise.
Risk registers are maintained using financial and reputational impact and probability assessments to score and rank all identified risks. The assessment also addresses the measures in place to manage the risk identified and sets dates for completion of the measures.
When threats have been identified and quantified, they are delegated to qualified individuals who are required to deliver effective risk management. Depending on the nature of the risk identified, specific skill sets may be required for the management of those particular risks.
A summary risk assessment is submitted annually to the Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents., the Audit Committee, and the Board of Directors for review. In the case of new or changed risks, reporting is accelerated.
To support functional responsibility, certain functions have access to risk assessments to assist them in their roles. Examples of such functions are Environmental Safety & Health Affairs (ESHA), to identify key sites for their property risk survey program, and Group Procurement, to ensure reliable and compliant supply of raw materials.
Examples of identified risks included in the risk register are:
Regulation and complianceComplianceCompliance is a key element of Corporate Governance. It refers to compliance with the law and directives as well as with company codes and ethical business practices and behaviors.: Clariant is subject to many rules and regulations as well as complianceComplianceCompliance is a key element of Corporate Governance. It refers to compliance with the law and directives as well as with company codes and ethical business practices and behaviors. standards. These include chemical industry, country, government, and customer requirements as well as the European Union’s (EU) Regulations on Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) or similar regulations in other countries. Global Product Stewardship is responsible for ensuring that all relevant legal requirements are met. Certain specific matters are delegated to other functions.
Sites and locations: This includes manufacturing plants and equipment important for the production of Clariant products for sale to customers. Also addressed are country- and culture-specific risks that could create threats to and opportunities for business objectives. The aim is to maintain high-quality and safe production facilities. ESHA and Regional Services are responsible for the management of the associated risks.
Cyber and information security: Successful performance of the Clariant Group depends on properly working information systems. Cyberattacks may result in the loss of business and personal data, knowledge, facilities, or money, leading to interruptions in manufacturing and product deliveries. Such attacks might cause significant economic damages as well as loss of trust. Clariant is responding to the increased cyber risk with a reinforced information security department, state-of-the-art software, and frequent awareness campaigns.
Examples of emerging risks included in the risk register are:
Energy price increases and shortages: The Clariant Group requires energy from various sources for use in production facilities with strong reliance on oil, natural gas, and electricity. Costs for natural gas and energy costs in general constitute a relevant proportion of the production and raw material costs. Clariant may not be able to pass on increasing energy costs to its customers in time or at all. In addition, shortages or the unavailability of certain types of energy could interrupt the production processes, especially in Germany, thereby materially and adversely impacting the Group’s ability to conduct its business and produce its products.
Geopolitical and macroeconomic risks: Global and regional economic, political, and social conditions and geopolitical tensions could lead to a recession (or »stagflation«) with negative gross domestic product growth. In addition, macroeconomic disruptions can lead to a sudden further increase in inflation, which may be followed by a strong recession. If conditions in the global economy or the key markets in which the Group operates deteriorate, the Group may experience a significant adverse impact, which may be material for the Group’s business, financial condition, and/or results of operations.