Risk management
Givaudan has established an internal risk management process based on the Givaudan Enterprise Risk Management Charter. It focuses on identifying and managing/exploiting risks.
Managing risk is an integral part of Givaudan’s business. Enterprise Risk Management (ERM) is the process of assessing, treating and monitoring the effects of uncertainty that may affect the achievement of Givaudan’s objectives, especially its publicly stated strategic objectives, or jeopardise Givaudan’s long-term business success. We operate a structured system of identifying, assessing and deciding on responses to mitigate key risks, and seek to consciously take the appropriate amount of risk, to manage these risks competently at the right level of the organisation, and to seize related business opportunities.
The Board of Directors defines the strategic risk management framework. This process is under the responsibility of the Executive Committee. The risk management process follows a structured assessment, review and reporting cycle that is coordinated by the Corporate Ethics & Compliance Officer to ensure a harmonised Group-wide approach.
For each identified strategic top-level Company risk a member of the Executive Committee is designated as the risk owner with the responsibility to manage the risk on a Group-wide basis. Once annually the Executive Committee reports to the Board on the risk management process, the strategic risks and the mitigation actions.
Givaudan’s ERM contributes to:
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safeguarding Company value and assets and a protection of shareholder interests
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exploiting strategic opportunities to further create Company value
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improving awareness amongst all key internal stakeholders of the nature and magnitude of the Company’s risks
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providing risk-based management information for effective decision-making
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improving compliance with good corporate governance guidelines and practices as well as applicable laws and regulations.
Enterprise Risk Management framework
Corporate internal audit provides assurance on the effectiveness of the risk management process.
Please see our latest Integrated Annual Report for more information on our risk mitigation approach and how we use our strengths to turn these risks into opportunities.
Risk categories and response
Business model risk: Our business model might become obsolete, specifically through the advent of digitalisation Risk of changes in consumer preferences: Consumers may change their preferences for products with fragrances and/or flavours they want to consume and how they acquire them. Customer risk: Changes at our customers may change their way of working with us and may negatively impact our own strategy. Competition risk: Changes in behaviour of existing competitors or new entrants may change the competitive landscape, in particular in relation to new business models. This may impact negatively on Givaudan’s competitive position in one or more markets. Risk of climate change / water scarcity: Climate change may lead to a number of effects which in turn impact our ability to operate. These may include water scarcity at one or more of our manufacturing sites or issues with our supply, in particular the availability of our key natural resources. As such, climate change poses a significant risk for Givaudan, but it also presents an opportunity to adapt its processes and act to mitigate the effects. We are fully committed to excellence in climate action and are implementing an ambitious agenda to take action for the environment across our operations and beyond. We have built our climate action agenda on ambitious GHG emission reduction targets. Givaudan’s targets have been approved by the independent Science Based Targets initiative in alignment with the global effort to limit climate change. We continue to work to reduce the environmental impact of our activities. Our expertise in green chemistry and techniques such as biocatalysis enables us to make products high in purity and yield, using less energy and fewer hazardous materials. We will continue to develop our capabilities in this area and seek to apply them at every opportunity in the future. Outside Givaudan, we involve our supply chain, from the raw material suppliers to indirect materials and service providers, in efforts to reduce their GHG emissions. Our innovation teams are also working on ‘side-stream valuation’, enabling us to use a larger part of the existing raw materials or re-use ‘food waste’ from our partners’ facilities. This saves on energy to create raw materials and reduces the risk of sufficient supply, as Givaudan can ‘do more with less’. Our Water Stewardship Programme ensures water risks are managed and monitored, and we are placing priority on places where water challenges are expected. In these areas we carry out risk assessments to develop water mitigation action plans, including efficiency improvements and water reuse opportunities. Disruption / breakdown of operations: A breakdown of our operations may threaten our ability to produce and deliver quality products/services at competitive prices on a timely basis. Such breakdown may be caused by internal or external factors. Disruption of supply chains / suppliers: A disruption in the supply of the raw materials we require for our production or volatility of raw material prices may negatively impact our ability to produce at competitive prices and in a timely manner. Such disruption may be caused by external factors such as climate change or a breakdown at one or more of our suppliers. Environment, Health and Safety and operational risk management: If Givaudan should operate in a way that is harmful to the environment and/or causes community nuisance (odour emissions, waste water), this could result in fines, reputational impact or even the loss of the Company’s licence to operate. Information technology risk: In a fast moving digital world, information and communication technologies are critical for Givaudan to address new consumer behaviours and to collaborate with its customers to give them the best experience. However, digitalisation also creates new threats and requires a permanent monitoring of information security risks and an extension of the risk assessment scope. The Group’s activities expose it to a variety of financial risks, including market risk (principally currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s financial performance. Our centres of expertise at Group level oversee the execution of the Financial Risk Management Policies, and we maintain a broad network of financing sources, including bank financing and debt capital markets in different geographies. We also have close collaboration within the various internal stakeholders to ensure the appropriate level of understanding and management of financial risks related to customers. In addition, we use financial derivatives to hedge the Group’s key financial risks, most notably Foreign Exchange and Interest Rate Risk. Product quality / product safety risk: A faulty product or one that is not compliant with regulations or is non-performing could expose Givaudan to consumer health issues, customer complaints, warranty claims, returns and re-runs, product liability claims or litigation and lead to loss of revenues, market share and business reputation. Legal and compliance risks: Should our employees, especially key individuals within the organisation (Board members, Executive Committee members, senior management) display or tolerate behaviour that is illegal or unethical, this could lead to reputational as well as financial damage to Givaudan.
Givaudan’s growth path of organic expansion and acquisitions inevitably involves some essential large-scale projects. EHS, as a full team member, is involved from the beginning of each project to assess and minimise risks. Our EHS teams support the design of all new building activities so that, in EHS terms, the plants we build today use learnings from the past and are fit for the future. In 2019, a number of new technologies for environmental protection in the area of odour emissions control were successfully tested on our sites.
READ OUR 2021 FINANCIAL REPORT, PAGE 57 FOR MORE INFORMATION REGARDING OUR FINANCIAL RISK MANAGEMENT
In addition, Givaudan supports, and in many cases leads, industry-wide programmes of the respective industry associations (the International Fragrance Association and the International Organization of the Flavor Industry) for ensuring the safe use of flavours and fragrances in consumer products.