Taking a holistic approach to risk management and reducing non-financial risks are important aspects of operating the business.
A number of Group functions are accountable for risk identification within their area of responsibility, and these report to Group Management on a regular basis. Each function is responsible for mitigating actions and ensuring that significant remaining risks are reported to Group Management for further review and decision-making. Three Group function risk management approaches are described here. Each has a particular bearing on sustainability risks.
Social, economic and environmental issues have the potential to become risks and are therefore reviewed regularly. Using its materiality process and value chain approach, Sustainability Affairs has responsibility for identifying and assessing business-relevant, sustainability-related risks and developing approaches to mitigate them. The Electrolux approach to environmental challenges and risks is founded on the Precautionary principle.
The Electrolux audit function Management Assurance and Special Assignments evaluates and improves the effectiveness of governance, internal control and risk management processes in a systematic way. Through a structured process of interviews and discussions with selected Group Functions and sector management, risks are identified and assessed, laying the foundation for prioritizing the auditing process and developing risk management measures.
Group Risk Management applies a Group-wide benchmarking tool for qualitative and quantitative information about the status of operations. This benchmarking is carried out across operations and key suppliers annually, according to 25 risk categories and six areas. The process is known as Blue Risk Assessment and is used when an area is identified as a material short- to medium-term risk to the business. It assesses the risks relating to safety, property damage and business interruption and is monitored by Group Risk Management. Every year, a loss prevention survey is conducted of all Electrolux production sites using the Electrolux Blue Risk benchmarking tool.
Many of the issues identified in the materiality process are managed as risks, and discussed below. Sustainability risks considered most material from a business perspective include:
The IPCC stated in its 2013 report that limiting climate change will require substantial and sustained reductions of greenhouse gas emissions. The direct impact of climate change is mainly long term. However, the indirect impacts emerging from changing requirements and expectations from stakeholders have already had an impact on the business.
Through active engagement in the climate agenda, Electrolux can contribute to positive change, reduce its negative impacts and at the same time generate business opportunities through the sale of energy-efficient products. The Electrolux Code of Conduct and the Environmental Policy describe how the Group manages the risks and opportunities associated with climate change.
Electrolux estimates that Group operations are not exposed in the short term to higher risks due to storms, drought, rising waters or changes in temperature. In its 2014 CDP report, Electrolux presents an estimate of the risks of production disruptions.
The Group’s biggest contribution to addressing climate change is to design energy-efficient products, resulting in lower carbon emissions from the use of these products. The challenge is to meet demand from a growing middle class with resource- and cost-efficient appliances, in particular in emerging economies. As part of the 2020 carbon reduction target, Electrolux is focusing on energy efficiency in its product offering.
More stringent European energy efficiency requirements affected refrigerators, dishwashers and washing machines from 2013 and will come into force for ovens, hobs and cooker hoods ovens in 2015. Other regions are also introducing or regularly reviewing minimum efficiency requirements, for example the US Department of Energy introduced more stringent standards for refrigerators and freezers in 2014. Electrolux supports phase-out of the most inefficient appliances, along with better enforcement of efficiency standards.
These changes in legislation and the need to modify products could have a material impact on Electrolux, presenting both risks and opportunities. The financial impacts of these risks are reported on at length in the Group's yearly disclosure to CDP (formerly Carbon Disclosure Project). Electrolux is preparing worldwide for more stringent rules for energy labeling, energy efficiency limits, producer responsibility for the recycling of appliances (including a revised EU WEEE Directive to come into force in 2016), and chemicals used in products. The Group is preparing for restrictions in the use of fluorinated gases such as foam-blowing agents and refrigerants presently used in some products, due to their global warming potential.
Legislation regarding the management of chemicals use and registration of the types of chemicals employed in manufacturing is also increasing, led by the EU RoHS Directive (Restriction of Hazardous Substances) and REACH. An EU regulation on conflict minerals is at draft stage.
Electrolux annually revises its RML (Restricted Materials List) to avoid the use of chemicals identified for phase-out and in order to better harmonize the response to chemical legislation worldwide. REACH is EU legislation on the registration, evaluation, authorization and restriction of chemicals. Electrolux sees REACH as a tool for ensuring safe products, safe production and environmental protection. In 2014, Electrolux established a global chemical office to effectively manage its RML and meet the requirements of chemical regulation such as REACH, on F-gases and for conflict minerals.
The actions of any supplier, employee or operation have the potential to positively or negatively impact stakeholders’ perception of Electrolux. Group workplace management, particularly the health and safety of employees and the way the company demonstrates accountability, can enhance the employee brand.
Reputational risk is addressed by means of a strong Electrolux values-based corporate culture, a commitment to openness and transparency in reporting on key challenges and risks, the Ethics at Electrolux program and forward-thinking supply chain management within the Responsible Sourcing Program.
The Ethics Program and policies guide employees in ethical conduct, including topics such as anti-bribery and corruption, anti-trust, workplace conduct, environment and conflicts of interest. In 2012, Electrolux stepped up its human rights efforts. The Group conducted a corporate human rights impact assessment taking into account geographical and activity-related risks. The Code of Conduct and the Workplace Standard were updated in 2014 to align with the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. During 2013, Electrolux introduced a global provider for ISO and OHSAS certification. The new approach improved governance and reporting and secured greater harmonization across the Group.
Electrolux has several ways to ensure the Code of Conduct is fulfilled, described in detail in Auditing and monitoring. These initiatives are designed to manage risk in operations, help reinforce a strong values-based culture and provide transparency to customers.
In a climate of retailer consolidation, Electrolux has fewer, more powerful customers. Their expectations for transparency and sustainable product offerings are rising and exert a strong influence on the Group’s position as a preferred supplier.
Good relationships with customers are in part due to the Group’s proactive environmental performance, social engagement and energy-smart products. An increasing number of retailers are requesting Code of Conduct audits of Electrolux facilities and suppliers, and the Group readily shares audit findings with customers.
As the Group expands to new regions and developing markets, different challenges and risk factors arise in the supply chain.
Due diligence of potential acquisitions and supply chain monitoring that highlight environmental, human rights, labor practice and corruption non-compliance, help the Group better understand the risks of operating and sourcing in low-cost regions.
The objective of the Responsible Sourcing program is to ensure that all suppliers adhere to the same high environmental and labor standards as Electrolux. Compliance to the Workplace Standard is mandatory and is used in evaluating both existing and potential suppliers.
The restructuring strategy also has the potential to impact individuals and local communities during closures. Managing closures by being transparent and inclusive is key to strengthening the Group’s reputation for corporate citizenship. See more in Community.
With the global growth of the middle class, demand for raw materials will increase and costs are expected to rise, even though the second half of 2014 saw falling materials prices. The first impact of greater demand is likely to be price increases, along with pressure for efficiency, materials substitution, recycling and reuse—all impacting product affordability. The Group’s exposure to raw materials comprises mainly steel, plastics, copper and aluminum.
Water risk is rising up the agenda globally, from both an environmental and human rights perspective. Electrolux has conducted an in-depth water risk assessment for operations and, based on this, efficiency improvement targets have been set for factories in high-risk areas.