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– Corporate governance – Risk management

Risk management

At Sulzer, risks are assessed regularly as part of the Company’s integrated risk management process. The results are discussed with the management and the Audit Committee.

Risk

 

Risk exposure

 

Main loss controls

External and markets

 

 

 

 

Market assessment

 

Market developments that are assessed ­inappropriately could lead to missed business opportunities or losses.

 

Continuous monitoring and assessment of market developments

Systematic midrange planning based on market developments and expectations

Geopolitical shocks

 

A geopolitical shock event could have an impact on operations and travel. Also, it ­could imply currency risks and default risks of countries and banks.

 

Monitoring of exposure in critical countries

Monitoring of debt situation of countries and banks

Continuous monitoring of raw material prices and inflation indicators

Sulzer’s global presence mitigates the effect of geopolitical shocks

48.82% of Sulzer’s shares are beneficially owned by Viktor F. Vekselberg, who is listed as a Specially Designated National by the US Office of Foreign Assets Control and subject to sanctions in other jurisdictions including the Ukraine, Japan, the UK, Australia, New Zealand, Canada and Poland. These sanctions and possible future sanctions in further countries could result in negative media coverage, damage to Sulzer’s reputation and impair existing business relationships with customers, suppliers, banks or other business partners as well as Sulzer’s ability to win future business.

 

Continuous monitoring of international sanctions environment and seeking of advice by reputable sanctions law firms

Maintaining and enhancing a robust sanctions compliance program

On April 25, 2022, Sulzer Pumps Wastewater Poland Sp. z o.o. and Sulzer Turbo Services Poland Sp. z o.o. were sanctioned in Poland due to Viktor F. Vekselberg’s ownership stake in Sulzer. Subsequently, Sulzer had to wind down its commercial activities in Poland.

 

Continuous monitoring of international sanctions environment and seeking of advice by reputable sanctions law firms

Maintaining and enhancing a robust sanctions compliance program

Strategic

 

 

 

 

Innovation

 

Failure in R&D and innovation activities could negatively impact the ability to operate and to grow the business. Insufficient investments in innovation to maintain technology leadership and develop innovative products.

 

A phased process, technical risk manageability assessments and key performance indicators to ensure quality of the development

Product development council with strong focus on strategic plans and digitalization

Prototypes and own test beds to test and validate products before market release

Core technology council for research of basic technology

Focus on innovation with strategic customers

Innovation and ideation projects

Implementation of an expert development program for key critical resources

Environment, Social and Governance (ESG)

 

ESG-related regulations could change. Stakeholder expectations related to ESG commitments could change. Not meeting regulatory requirements could result in fines, limit access to financing, impact banking channels and result in loss of business and reputational damages

 

Board Strategy and Sustainability Committee extended to cover ESG and sustainability

Setting of clear ESG-related objectives and progress tracking

ESG initiatives driven by EC including different group and business functions covering regulatory requirements and supply chain due diligence

ESG assessments in business projects

Operational

 

 

 

 

Attraction and retention

 

Failure to attract, retain and develop people could lead to a lack of critical skills and knowledge, which hinders both daily operations and growth potential.

 

Ensuring that Sulzer’s people and performance efforts are anchored to the Company’s values and behaviors

Ongoing feedback through employee opinion survey “Voice of Sulzer”

Robust internal communications strategy

Ongoing engagement in workshops and collaborative activities

Visibility and access to creating development experiences and opportunities

Consistent approach to salary grading and benchmarking

Health and safety

 

An unsafe working environment could lead to harm to people, reputational damage, fines as well as liability claims and could have a serious economic impact.

 

Health and safety directives, guidelines, programs (e.g. Safe Behavior Program) and training

OHSAS 18001 and ISO 45001 certifications

Monthly health and safety controlling and regular audits, systematic risk assessments

Global network of health and safety officers

Immediate implementation of COVID-19 preventive measures in all legal entities and workplaces, including: informing and training employees on COVID-19 preventive measures; implementation of risk assessment procedures, travel ban for high-risk countries and approval concepts for business travel; implementation of remote working; implementation of remote video to support final acceptance procedures in manufacturing

Environmental

 

Environmental damage could lead to harm to people and nature, reputational damage, fines as well as liability claims and could have a serious economic impact.

 

Mitigation in comprehensive environmental due diligence (EDD) projects for acquisitions and divestitures

Elimination of environmentally damaging substances through Prohibited Substances List

 

 

Sulzer sustainability strategy that defines key targets in view of climate change

Compliance

 

Non-compliant or unethical behavior could lead to reputational damage, fines and liability claims.

 

Active fostering of high ethical standards by tone from the top and middle management

Continuous monitoring and assessment of potential exposures

Continuous monitoring of regulatory environment

Sulzer Code of Business Conduct and a number of supporting regulations (e.g. anticorruption, antitrust, trade control)

Third-party due diligence process

Global and centrally led organization of compliance and trade compliance officers

Compliance training (incl. e-learning) and audits

Sensitive country list with escalation process and project-specific compliance assessments in high-risk countries

Speak-up culture, compliance hotline and sanction checks

Quality of products and services

 

Failure of high-quality products and services could lead to repeated work, reputational damage or liability claims.

 

Quality management and assurance systems tailored to specific businesses

Third-party accreditation

Competence development programs and training of employees

Test centers

Business interruptions

 

Business interruption, such as a fire, could cause damage to people, property and equipment. It could have a negative effect on the ability to operate at the affected site. Security incidents could impact the IT infrastructure or systems, which could result in a business interruption. Business interruption caused by pandemic-related lockdowns or bottlenecks in logistics centers, lack of transport capacities, lack of raw materials or electronic parts or increased demand could have an impact on operations and supply chains and thus could lead to serious economic impact.

 

Crisis and emergency management systems (at global and local level) including close monitoring of incidents which could impact supply chains

Risk management policy and guidelines

Global manufacturing footprint and global procurement

IT security standards, measures and incident response team

Disaster recovery plans in IT

Implementation of COVID-19 business interruption response team to support businesses in becoming qualified as essential service providers

Global monitoring of COVID-19-related governmental decisions and COVID-19 impacts on supply chains and availability of raw materials

Enhancement of IT infrastructure to cope with higher data volumes during extended remote work

Financial

 

 

 

 

Financial markets

 

The unpredictability of financial markets may have a negative effect on Sulzer’s financial performance and its ability to raise or access capital.

 

Group financial policy

Foreign exchange risk policy

Trading loss limits for financial instruments

Credit

 

Credit risks arising from financial institutions and from customers could have a negative effect on Sulzer’s financial performance and ability to operate.

 

For financial institutions, only parties with a strong credit quality are accepted (third-party rated)

Individual risk assessment of customers with large order volumes

Continuous monitoring of country risks

Liquidity

 

Failure in liquidity risk management may have a negative effect on Sulzer’s financial performance and its ability to operate.

 

Continuous liquidity monitoring

Management of liquidity reserves at group level

Cash flow program to optimize liquidity and cash flow management

Efficient use of available cash through cash pooling